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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26449
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| Title: | The effect of dividends on consumption |
| Authors: | Baker, Malcolm
Nagel, Stefan
Wurgler, Jeffrey |
| Issue Date: | 20-May-2005 |
| Series/Report no.: | FIN-05-041 |
| Abstract: | Classical models predict that the division of stock returns into
dividends and capital appreciation does not affect investor consumption
patterns, while mental accounting and other economic frictions predict
that investors have a higher propensity to consume from stock returns in
the form of dividends. Using two micro data sets, we show that investors
are indeed far more likely to consume from dividends than capital gains.
In the Consumer Expenditure Survey, household consumption increases with
dividend income, controlling for total wealth, total portfolio returns,
and other sources of income. In a sample of household investment
accounts data from a brokerage, net withdrawals from the accounts
increase one-for-one with ordinary dividends of moderate size,
controlling for total portfolio returns, and also increase with mutual
fund and special dividends. We comment on several potential explanations
for the results. |
| URI: | http://hdl.handle.net/2451/26449 |
| Appears in Collections: | Finance Working Papers
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