Abstract
I investigate the importance of personal savings rate in the cross-sectional pricing of individual stocks. I estimate each stock's monthly-varying sensitivity to the personal savings rate and show that stocks in the lowest savings rate beta quintile generate 6% more annualized risk-adjusted return compared to stocks in the highest savings beta quintile. I find that the savings premium is driven by the outperformance (underperformance) of stocks with negative (positive) savings rate beta. These results are robust to controls for various firm-specific characteristics and risk factors. Moreover, the alpha spread between the highest and the lowest savings rate beta stocks increases during high economic uncertainty, low credit availability, and high income risk periods. Finally, the results are consistent with the risk correction predictions of the Consumption-CAPM literature.
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