Presentation date: 13:10-15:00, December 22nd, 2022
Presentation room: 7F02
Speaker: Tse-Chun Lin
https://www.hkubs.hku.hk/people/tse-chun-lin/
Professor of Finance/Area Head of Finance,
HKU Business School,
University of Hong Kong
Title: In Victory or Defeat: Consumption Responses to Wealth Shocks
Abstract:
Using a novel representative sample of digital payment data, we observe a robust U-shaped relationship between individual investors’ monthly entertainment-related consumption and stock market returns in the previous month. Contrary to the prediction of the wealth effect, individuals increase their entertainment-related consumption after experiencing large positive and negative stock market shocks. We show that the latter effect, termed “financial retail therapy,” is consistent with a dynamic model of Prospect Theory, and provide further evidence for it in a controlled laboratory experiment. Finally, we show that our results are not driven by income effects or wealth shock measurement errors.