The Consumption Response to Realized Capital Gains: Evidence from Mutual Fund Liquidations

Steffen Meyer, Michaela Pagel, Alessandro Previtero

Research output: Contribution to conference without publisher/journalPaperResearchpeer-review

Abstract

Using a large sample of transaction-level data on all asset holdings, spending, and income from a German retail bank, this paper explores how individual consumption responds to realized capital gains. Our identification strategy exploits mutual fund closures, which are arguably exogenous to individual characteristics. We estimate the marginal propensity to consume (MPC) out of one dollar received from a forced sale event and find that it is approximately 30%. We explore how the MPC varies in age and income as well as over the business cycle and across interest rate regimes. We find a higher MPC for low-income investors, which appears consistent with standard life-cycle portfolio-choice models, though we do not find any differences in the MPC for young versus old investors. We also find that the MPC to be lower in recessions and decreasing in interest rates, which is surprising from a standard model perspective.
Original languageEnglish
Publication date2018
Publication statusPublished - 2018
Event3rd Annual CEPR Symposium on Household Finance - Italy, Sicily
Duration: 5. Oct 20186. Oct 2018
https://cepr.org/sites/default/files/Draft%20programme_HF%20Sicily%202018_v3_15.pdf

Conference

Conference3rd Annual CEPR Symposium on Household Finance
LocationItaly
CitySicily
Period05/10/201806/10/2018
Internet address

Fingerprint

Mutual funds
Capital gains
Marginal propensity to consume
Liquidation
Interest rates
Investors
Income
Portfolio choice
Recession
Closure
Choice models
Business cycles
Individual characteristics
Low income
Assets
Retail
Life cycle

Keywords

  • Asset allocation

Cite this

Meyer, S., Pagel, M., & Previtero, A. (2018). The Consumption Response to Realized Capital Gains: Evidence from Mutual Fund Liquidations. Paper presented at 3rd Annual CEPR Symposium on Household Finance, Sicily, .
Meyer, Steffen ; Pagel, Michaela ; Previtero, Alessandro. / The Consumption Response to Realized Capital Gains: Evidence from Mutual Fund Liquidations. Paper presented at 3rd Annual CEPR Symposium on Household Finance, Sicily, .
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Meyer, S, Pagel, M & Previtero, A 2018, 'The Consumption Response to Realized Capital Gains: Evidence from Mutual Fund Liquidations' Paper presented at 3rd Annual CEPR Symposium on Household Finance, Sicily, 05/10/2018 - 06/10/2018, .

The Consumption Response to Realized Capital Gains: Evidence from Mutual Fund Liquidations. / Meyer, Steffen; Pagel, Michaela; Previtero, Alessandro.

2018. Paper presented at 3rd Annual CEPR Symposium on Household Finance, Sicily, .

Research output: Contribution to conference without publisher/journalPaperResearchpeer-review

TY - CONF

T1 - The Consumption Response to Realized Capital Gains: Evidence from Mutual Fund Liquidations

AU - Meyer, Steffen

AU - Pagel, Michaela

AU - Previtero, Alessandro

PY - 2018

Y1 - 2018

N2 - Using a large sample of transaction-level data on all asset holdings, spending, and income from a German retail bank, this paper explores how individual consumption responds to realized capital gains. Our identification strategy exploits mutual fund closures, which are arguably exogenous to individual characteristics. We estimate the marginal propensity to consume (MPC) out of one dollar received from a forced sale event and find that it is approximately 30%. We explore how the MPC varies in age and income as well as over the business cycle and across interest rate regimes. We find a higher MPC for low-income investors, which appears consistent with standard life-cycle portfolio-choice models, though we do not find any differences in the MPC for young versus old investors. We also find that the MPC to be lower in recessions and decreasing in interest rates, which is surprising from a standard model perspective.

AB - Using a large sample of transaction-level data on all asset holdings, spending, and income from a German retail bank, this paper explores how individual consumption responds to realized capital gains. Our identification strategy exploits mutual fund closures, which are arguably exogenous to individual characteristics. We estimate the marginal propensity to consume (MPC) out of one dollar received from a forced sale event and find that it is approximately 30%. We explore how the MPC varies in age and income as well as over the business cycle and across interest rate regimes. We find a higher MPC for low-income investors, which appears consistent with standard life-cycle portfolio-choice models, though we do not find any differences in the MPC for young versus old investors. We also find that the MPC to be lower in recessions and decreasing in interest rates, which is surprising from a standard model perspective.

KW - Asset allocation

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Meyer S, Pagel M, Previtero A. The Consumption Response to Realized Capital Gains: Evidence from Mutual Fund Liquidations. 2018. Paper presented at 3rd Annual CEPR Symposium on Household Finance, Sicily, .