Financial Wealth Effects Research Articles

Quantifying reciprocal relationships between poverty and health: combining a causal loop diagram with longitudinal structural equation modelling.

This study takes on the challenge of quantifying a complex causal loop diagram describing how poverty and health affect each other, and does so using longitudinal data from The Netherlands. Furthermore, this paper elaborates on its methodological approach in order to facilitate replication and methodological advancement. After adapting a causal loop diagram that was built by stakeholders, a longitudinal structural equation modelling approach was used. A cross-lagged panel model with nine endogenous variables, of which two latent variables, and three time-invariant exogenous variables was constructed. With this model, directional effects are estimated in a Granger-causal manner, using data from 2015 to 2019. Both the direct effects (with a one-year lag) and total effects over multiple (up to eight) years were calculated. Five sensitivity analyses were conducted. Two of these focus on lower-income and lower-wealth individuals. The other three each added one exogenous variable: work status, level of education, and home ownership. The effects of income and financial wealth on health are present, but are relatively weak for the overall population. Sensitivity analyses show that these effects are stronger for those with lower incomes or wealth. Physical capability does seem to have strong positive effects on both income and financial wealth. There are a number of other results as well, as the estimated models are extensive. Many of the estimated effects only become substantial after several years. Income and financial wealth appear to have limited effects on the health of the overall population of The Netherlands. However, there are indications that these effects may be stronger for individuals who are closer to the poverty threshold. Since the estimated effects of physical capability on income and financial wealth are more substantial, a broad recommendation would be that including physical capability in efforts that are aimed at improving income and financial wealth could be useful and effective. The methodological approach described in this paper could also be applied to other research settings or topics.

Understanding the effect of art infusion type on retail product shopping: An attention to the intervening role of customers’ financial wealth

What type of art infusion contributes more to positive product evaluation? The purpose of this study was to investigate the interaction effect of art infusion type (abstract vs. figurative artwork) and consumers' financial wealth on the attitude toward retailing products via aesthetic emotion. To this end, the two hypotheses was developed drawing upon (a) information-processing stage model of aesthetic processing and (b) theory of cultural capital. An experiment (N = 500) was conducted to test the two hypotheses. The results of a moderated mediation analysis using process macro revealed that to high-income consumers, infusing abstract artwork provoked greater aesthetic emotion than infusing figurative artwork. Yet, to low-income consumers, infusing figurative artwork provoked greater aesthetic emotion than inserting abstract artwork. Further, product attitude served as a downstream consequence of aesthetic emotion. These findings enrich art infusion literature by presenting a new art infusion dimension (art infusion type), its boundary condition (consumers’ income level), and its consequence (product attitude). These findings also provide novel insights into how to leverage art infusion and consumer characteristics for product promotion.

Does depression co-occur within households? The moderating effects of financial resources and job insecurity on psychological contagion

The empirically related psychopathologies of stress and depression exact an enormous economic toll and have many physical and behavioral health effects. Most studies of the effects of stress and depression focus on their causes and consequences for a single, focal individual. We examine the extent to which depression, as indicated by filling antidepressant prescriptions (SSRI and Benzodiazepines), co-occurs across spouses, constituting a negative spillover effect. To better understand the conditions that affect within-household contagion of depression, we examine whether the stress and uncertainty occasioned by job change and financial stress (net worth) increases spillover effects among spouses.We use panel data from various Danish administrative registers from the year 2001–2015 with more than 4.5 million observations on more than 900,000 unique individuals and their spouses from Danish health registers.Spouses in a household with their partner using antidepressants have a 62.1% higher chance of using antidepressants themselves, with the one year lagged effect being 29.3% and a two-year lagged effect of 15.1%. The effects become larger by 14.8% contemporaneously and 20% in the two-year lagged model if the focal individual changed employers. There was also a substantively unimportant effect of lower financial wealth to increase inter-spousal contagion.

Nonlinear responses of consumption to wealth, income, and interest rate shocks.

Nonlinear adjustments of consumption to housing prices, stock prices, income, and interest rates were investigated by employing panel data from 25 countries, spanning the period 2000 to 2016. This is the first study which STAR family models and nonlinear impulse response functions based on the local projections employed alternatively. We present three main pieces of evidence: (1) housing prices, stock prices, interest rates, and income exposures of consumption show time-varying and asymmetric behaviours across all countries, (2) housing wealth effects show stronger persistency and are generally larger than financial wealth effects in most of the countries, and (3) time-varying housing and financial wealth effects are high (low) during expansionary (recessionary) periods across all countries. We suggest to consider both monetary and fiscal policies, as well as the asymmetric and time-varying nature of house prices, stock prices, income, and interest rates on the top of any potential impact of the level of transition in these variables.

Smoking hot portfolios? Trading behavior, investment biases, and self-control failure

Self-control is a personality trait that explains undersaving and nonparticipation decisions. We show that self-control failure also affects trading behavior among individuals on capital markets. We use smoking as the most socially accepted example of self-control failure among 13,644 German brokerage clients and compare the trading behavior of 3,553 smokers and 10,091 nonsmokers. Smokers are associated with a higher portfolio turnover unexplained by financial sophistication or wealth effects. Self-control failure also exacerbates overconfidence, social contagion, sensation seeking, and attention grabbing. Overall, self-control failure is costly because it increases the gap between gross and net returns of smokers relative to nonsmokers. • Novel data of 13,644 bank clients with security transactions and account bookings. • Identification of smokers as empirically observable proxy of self-control failure. • Smokers have a 6.84% higher portfolio turnover per year. • Self-control failure exacerbates existing predispositions (e.g., overconfidence).

Financialisation and the Portuguese private consumption: two contradictory effects?

ABSTRACT This paper makes an empirical evaluation of the relationship between financialisation and the Portuguese private consumption by performing a time series econometric analysis from the first quarter of 1996 to the third quarter of 2019. Framed within the post-Keynesian literature, financialisation has two contradictory effects on private consumption. The first one corresponds to the fall in the households’ labour income, which favours a deceleration of private consumption. The second one corresponds to the increase of households’ debt and the increase of households’ financial and housing wealth, which favours an acceleration of private consumption. The global net effect of financialisation tends to be positive because the beneficial wealth effect suppresses the harmful income effect. We estimated a private consumption equation that includes four control variables (unemployment rate, inflation rate, short-term interest rate and long-term interest rate) and three variables linked to financialisation (labour income, net financial wealth and housing wealth). Our results confirm that labour income, net financial wealth and housing wealth are positive determinants of Portuguese private consumption. Our results also show that financialisation has represented an important driver of Portuguese private consumption, particularly due to the beneficial effects of net financial wealth.

Multi-Horizon Financial and Housing Wealth Effects across the U.S. States

We investigate for the presence of multi-horizon wealth effects across U.S. states over the period of 1975:Q2 to 2012:Q2 by utilizing multi-horizon non-causality testing and multi-horizon causality measurement. At the state/aggregate level, we document that housing wealth has more statistically significant and persistent impact on private consumption than financial wealth. We also find that state-level housing/financial wealth effects are present at long time horizons and exhibit heterogeneity across the U.S. From a policy perspective, we suggest that state-level policies may specifically utilize the housing market to support consumption and growth.

Financial wealth, socioemotional wealth, and founder exits: an empirical examination of Chinese IPOs

ABSTRACT Initial public offerings (IPOs) are typically viewed as the peak of entrepreneurial success, providing founder-CEOs a chance to profitably exit. Founder-CEOs, however, are often motivated by non-financial considerations in addition to the desire to amass wealth. According to the behavioral agency model, the founder-CEOs’ framing of gains vs. losses of their wealth creation at IPO determines their risk aversion vs. risk taking behaviors. In addition, the behavioral agency model argues that founder-CEOs with a great deal of socioemotional wealth fear losing that wealth. This fear will attenuate their aversion to losing financial wealth. To test our model, we collected a sample of 130 entrepreneurial IPOs from 2004 to 2009 in China whose founder-CEOs left the firm after it went public. The results confirm a U-shaped relationship between the founder-CEOs’ financial wealth and their exit speed after the IPO. A high level of socioemotional wealth, exemplified by the CEOs’ tenure, a higher ratio of insiders on the board, and the age of the stock market, negatively moderates the effect of financial wealth. We contribute to the literature by providing empirical support for the behavioral agency model and founder-CEO exits in China by examining both financial and socioemotional wealth.

Financial wealth effects and consumption expenditure

AbstractThere has been a renewed interest in the wealth effects on household consumption expenditure mostly in the background of the global financial crisis and Eurozone turmoil. The available literature on wealth effects mostly focuses on advanced economies. Hence, this article studies the financial wealth effects on private final consumption expenditure (PFCE) in an emerging economy like India. We use the quarterly data for the period 1951–2015 and employ the ARDL method that has the flexibility in overcoming the econometric issues associated with the traditional methods in the analysis of time series models. The results suggest that financial assets wealth in the form of stock market capitalization (MC) significantly affects the PFCE. This article establishes the long‐run positive relationship between financial wealth assets and household consumption. The major inference is that households are closely linked with the financial markets through their investments in the form of insurance, mutual funds, company deposits, company stocks, and other forms. Hence their consumption behavior is significantly affected by the financial wealth created by the financial markets. The policy implication is to make the financial markets more transparent, easy to access by reducing the related financial intermediation costs leading to a deeper integration of the households with the financial markets, which in turn would result in increased financial asset wealth generation and consequently increased household consumption to boost economic growth.

Threshold effects of housing affordability and financial development on the house price‐consumption nexus

AbstractThe study explores the asymmetric effect of housing and financial wealth on household consumption behaviour using panel data from 24 OECD countries, spanning the period 2000–2016 by employing a financial development (FD) index (proxy for financial deepening) and the house price‐to‐income (HPI) ratio (proxy for housing affordability) through a threshold empirical framework. The analysis tests certain hypotheses, such as: (i) the housing wealth effect on consumption is stronger than its financial counterpart, (ii) overall wealth effects increase (decrease) during bubble (post bubble) periods, (iii) the higher level of financial development and the lower level of housing affordability ratio both result in stronger wealth effects, (iv) increasing wealth effects show a bubble formation. The results suggest that housing wealth has generally a greater positive effect on consumption. The effect of housing and financial wealth on consumption increases, depending on higher financial development and declining housing affordability. The evidence also suggests that the impact of housing and stock market wealth has increased during the dot.com and housing bubble periods.

Wealth and consumption inequality: an interquantile analysis

Purpose The purpose of this paper is to analyze the changes in wealth and consumption inequality in Spain and estimate the consumption effects of housing and financial wealth. Design/methodology/approach The estimations are made using micro-data from the Spanish Survey of Household Finances (2002–2014) applying cross-section, panel and interquartile techniques. Findings The findings of this paper suggest that there was an increase in wealth inequality during the period under analysis and a reduction in consumption inequality. Also, the authors find a significant positive effect of wealth on consumer expenditure. Disaggregating by asset type, the value of the main residence is the category with the highest estimated effect on consumption, whereas the remaining types of assets, although still positive and generally significant, have more modest effects on consumption. However, the estimated coefficients and their significance can change substantially depending on the phase of the economic cycle and the position of the household in the income distribution. Originality/value These results provide new empirical evidence on the effects of household wealth changes on their consumption behavior, the differences depending on the household's position in the distribution and the fluctuations of these estimated coefficients throughout a period of profound economic upheavals.

Measuring Income and Wealth Effects on Private-Label Demand with Matched Administrative Data

Industry sentiment and practitioners’ observations link income and wealth to private-label demand. The intuition is that decreasing income and wealth increase the demand for (cheaper) private labels. Recent academic research focusses on measuring the causal effect of income and wealth changes on demand for private labels. Whereas plausible causality is harder to establish in aggregate, time series analyses, such analyses suggest large effect sizes (e.g. Lamey, Deleersnyder, Dekimpe, and Steenkamp 2007). An individual-level perspective greatly facilitates plausibly causal estimates (Dube, Hitsch and Rossi 2018) but poses measurement challenges. We overcome these challenges by linking household scanner data to administrative data. We analyse individual-level private-label shares measured in household scanner data as a function of income and wealth, both from a linked administrative database in the Netherlands in the period from 2011–2018 and both aggregated over all household members (rather than only from the main earner). We find that relying on within-household variation in surveyed income data attenuates income effects relative to using that from administrative data. Yet, we find an economically small effect. Using our direct measures of wealth, we find a statistically reliable but again economically small effect of financial wealth on private-label shares. Wealth from housing does not proxy this effect, nor does housing wealth seem to independently influence private-label shares.

Wealth Effects on Consumption in Malta: Evidence from Household Level Data

This paper attempts to examine for the first time the effects of household wealth on consumption in Malta, based on household level data from the 2017 Household Finance and Consumption Survey (HFCS). The estimation of the log-log consumption function is performed using OLS regression, after taking into account the survey design. The results provide evidence in support of the existence of a wealth effect on consumption, stemming from housing and financial wealth. In particular, the housing wealth effect on consumption is positive and higher than the financial wealth effect for the whole sample size, especially for homeowners. In addition, comparisons in the differences in wealth effects across age groups confirm the existence of a life-cycle pattern in consumption.

Analyzing the Effects of Financial and Housing Wealth on Consumption Using Micro Data

This paper analyzes the existence of 'wealth effects' derived from net equity (in the form of housing, financial assets, and total net worth) on consumption. The study uses longitudinal household-level data -- from the Panel Study of Income Dynamics (PSID) -- covering about 7,000-9,000 households in the U.S., with the estimations carried over the period 1999-2017. Overall, wealth effects are found to be relatively large and significant for housing wealth, but less so for other types of wealth, including stocks. Furthermore, the analysis shows how these estimated marginal propensities to consume (MPC) from wealth are closely linked to household characteristics, including income and demographic factors. Finally, underlying structural changes in household characteristics point to potentially lower aggregate MPCs from wealth going forward.

Analyzing the Effects of Financial and Housing Wealth on Consumption using Micro Data

This paper analyzes the existence of “wealth effects” derived from net equity (in the form of housing, financial assets, and total net worth) on consumption. The study uses longitudinal household-level data?from the Panel Study of Income Dynamics (PSID) ?covering about 7,000-9,000 households in the U.S., with the estimations carried over the period 1999-2017. Overall, wealth effects are found to be relatively large and significant for housing wealth, but less so for other types of wealth, including stocks. Furthermore, the analysis shows how these estimated marginal propensities to consume (MPC) from wealth are closely linked to household characteristics, including income and demographic factors. Finally, underlying structural changes in household characteristics point to potentially lower aggregate MPCs from wealth going forward.

Multi-Horizon Financial and Housing Wealth Effects across the U.S. States

Multi-horizon non-causality testing (Dufour et al., 2006) and multi-horizon causality measurement (Dufour and Taamouti, 2010). We find in both that housing wealth has a more statistically significant, persistent, and widespread impacts than financial wealth on state/aggregate levels. We also find that state-level housing/financial wealth effects show heterogenity accross the U.S. Moreover, except the result of multi-horizon causality measure for financial wealth, the evidence show the presence of financial/housing wealth effects for consumption in longer horizons. State level evidence suggests that state-level policies may specifically utilize the housing market to support consumption and growth.

More Cash Flows, More Options? The Effect of Cash Windfalls on Small Firms

Among the typical entrepreneurs in small firms, how do cash windfalls affect their entrepreneurial activities? What financial consequences exist for entrepreneurs and their businesses? We use hand-collected data in a novel setting that exploits the bonus that retailers earn when selling jackpot-winning lottery tickets. Cash windfalls have positive effects on the internal growth of the existing business. In particular, an additional $100,000 increases revenues by $36,561 and the number of employees by 0.87. Surprisingly, we find that the bonus also leads to new business creation in non-retail industries, which is associated with the closedown of existing businesses. Contrary to prior findings for non-entrepreneurs, cash windfalls do not lead to financial distress on entrepreneurs or their businesses. Both the internal growth and new business creation become stronger when owners own no real estate assets or reside in low-income ZIP codes. These findings, along with evidence of non-linear effects on entrepreneurial activity, are consistent with both financial constraints and wealth effects channels.

Revisiting the Relationship between Financial Wealth, Housing Wealth, and Consumption: A Panel Analysis for the U.S.

Based on the seminal paper of Case, Quigley, and Shiller (2013), we investigated the effects of financial and housing wealth on consumption. Using quarterly data from 1975 to 2016 for all states of the U.S. economy, and a different methodology in measuring wealth, we report relatively greater financial effects than housing effects on consumption. Specifically, in our basic utilized model, the calculated elasticity for financial wealth was 0.060, while for housing it was 0.045. The results were not in agreement with the ones obtained by Case, Quigley, and Shiller. In an attempt to investigate this disparity, we proceeded by incorporating the introduction of the Tax Reform Act in 1986, which increased incentives for owner-occupied housing investments. Finally, due to distributional factors at work, and taking into account the pronounced uneven distribution of wealth, we investigated the effects of wealth for eight states that included the metropolitan areas comprising the well-known Case–Shiller 10 City Composite Index. Now the housing effect on consumption was much stronger and larger than the financial effect. Additionally, we forecasted the consumption changes at the time of high rise and large drops in house prices for these states. Forecasts showed a recession from the fall of Lehman Brothers until the fourth quarter of 2011. These forecasts were not verified. Probably, the new techniques used by policies played an important role. We also found that extreme behaviors cannot be predicted.

Fiscal rules and the intergenerational welfare effects of public investment

A common argument against balanced-budget fiscal rules has it that the costs of durable public capital fall entirely on current generations while its benefits also accrue to future generations. This paper proposes an additional argument whereby balanced-budget rules imply uneven welfare effects of public investment across generations. Using an overlapping generations model of a small open economy, I show that, when subject to a balanced-budget constraint, public investment causes a negative financial wealth effect on current generations. Numerical simulations of the model show that, in terms of welfare, this negative financial wealth effect more than offsets the productivity gains of higher public investment spending, leaving current generations worse-off. A golden rule exempting net public investment from the balanced-budget requirement overturns this effect and allows for welfare gains to both current and future generations. Allowing for debt-financing may thus be necessary to ensure public support for efficient increases in public investment spending.

How Reliable are Cointegration-Based Estimates for Wealth Effects on Consumption? Evidence from Switzerland

SummaryAccording to economie theory, the intertemporal budget constraint of households implies that a permanent increase in wealth should have a positive effect on consumer spending. Given the comparatively strong increase in Swiss household wealth over the past few years, the question of the extent to which changes in wealth influence expenditures of households has become of special interest for Switzerland. In this paper, I show that while the link among consumption, wealth and income was quite strong from 1981 to 2000, it has been very unstable since 2001. This fact suggests that the gap among the three variables, i.e., the deviation from long-run equilibrium, that has opened over the last few years is less likely to close. The results apply to aggregate wealth effects as well as to separate financial and housing wealth effects. Furthermore, I document several fragility issues related to the use of the cointegration approach to estimating wealth effects. These issues highlight the importance of carefully checking the robustness of the results, instead of looking just at one cointegration estimation method and only one time period. They also highlight the need for a non-cointegration approach to estimating wealth effects.