Working Paper: CEPR ID: DP15191
Authors: Scott R. Baker; Stephanie Johnson; Lorenz Kueng
Abstract: Households tend to hold substantial amounts of non-financial assets in the form of inventory. Households can obtain significant financial returns from strategic shopping and optimally managing these inventories of consumer goods. In addition, they choose to maintain liquid savings - household working capital - not just for precautionary motives but also to support this inventory management. We demonstrate that households earn high returns from inventory management at low levels of inventory, though returns decline rapidly as inventory levels increase. We provide evidence using scanner and survey data that supports this conclusion. High returns from inventory management that are declining in wealth offer a new rationale for poorer households not to participate in risky financial markets, while wealthier households invest in both financial assets and working capital.
Keywords: household working capital; stock market participation; financial returns; inventory; stockpiling
JEL Codes: G51; G11; D14; D13; D12; D11; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inventory Management (M11) | Financial Returns (G12) |