Topic
Wealth effect
About: Wealth effect is a research topic. Over the lifetime, 1291 publications have been published within this topic receiving 32469 citations.
Papers published on a yearly basis
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Papers
TL;DR: In this article, the authors describe financial contagion as a wealth effect in a continuous-time model with two risky assets and three types of traders, i.e., convergence traders with logarithmic utility trade optimally in both markets, while noise traders trade randomly in one market.
Abstract: Financial contagion is described as a wealth effect in a continuous-time model with two risky assets and three types of traders. Noise traders trade randomly in one market. Long-term investors provide liquidity using a linear rule based on fundamentals. Convergence traders with logarithmic utility trade optimally in both markets. Asset price dynamics are endogenously determined ~numerically! as functions of endogenous wealth and exogenous noise. When convergence traders lose money, they liquidate positions in both markets. This creates contagion, in that returns become more volatile and more correlated. Contagion reduces benefits from portfolio diversification and raises issues for risk management. DURING THE F INANCIAL PANIC ASSOCIATED with the default of the Russian government in August 1998 and the subsequent collapse of the hedge fund Long Term Capital Management, numerous hedge funds, banks, and securities firms tried simultaneously to reduce exposures to a variety of financial instruments, such as Russian bonds, Brazilian stocks, U.S. mortgages, spreads between on-therun and off-the-run government securities, and spreads between swaps and U.S. Treasuries. Although the fundamental values of these positions would appear to have little correlation, during this financial crisis, the asset prices in these markets exhibited the following common empirical pattern: 1. Financial intermediaries suffered losses as prices moved against their positions; 2. Market depth and liquidity decreased simultaneously in several markets; 3. The volatility of prices increased simultaneously in several markets; and,
1,131 citations
TL;DR: In this article, the authors investigated the response of household consumption to house prices using UK micro data and found that the largest effect of house prices on consumption for older homeowners and the smallest effect, insignificantly different from zero, for younger renters.
966 citations
TL;DR: In this article, the authors examined bidder returns at the announcement of a takeover proposal when the target firm is privately held and found that bidders experienced a positive abnormal return, which contrasts with the negative abnormal return typically found for bidderers acquiring a publicly traded target.
Abstract: We examine bidder returns at the announcement of a takeover proposal when the target firm is privately held. In stock offers, bidders experience a positive abnormal return, which contrasts with the negative abnormal return typically found for bidders acquiring a publicly traded target. On the other hand, bidders experience no abnormal return in cash offers. Our analysis suggests that the positive wealth effect is related to monitoring activities by target shareholders and, to an extent, reduced information asymmetries.
937 citations
Posted Content•
TL;DR: This article proposed a model that generates an economic expansion in response to good news about future total factor productivity (TFP) or investment-specific technical change, without relying on negative productivity shocks.
Abstract: We propose a model that generates an economic expansion in response to good news about future total factor productivity (TFP) or investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that exhibit a weak short-run wealth effect on the labour supply. These preferences nest the two classes of utility functions most widely used in the business cycle literature as special cases. Our model can generate recessions that resemble those of the post-war U.S. economy without relying on negative productivity shocks. The recessions are caused not by contemporaneous negative shocks but rather by lackluster news about future TFP or investment-specific technical change.
885 citations
TL;DR: In this paper, the authors explored the link between changes in the aggregate value of corporate stock and changes in consumer spending and found that after a change in stock market values, consumer spending is likely to rise by between one and two cents for each dollar increase in the value of stock.
Abstract: This paper explores the link between changes in the aggregate value of corporate stock and changes in consumer spending. It presents data on the distribution of corporate stock ownership based on the 1998 Survey of Consumer Finances. It also uses time-series evidence on the comovement of stock market wealth and various categories of consumer spending to calibrate "the wealth effect." It concludes that in the year after a change in stock market values, consumer spending is likely to rise by between one and two cents for each dollar increase in the value of corporate stock.
844 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2025 | 1 |
| 2024 | 2 |
| 2023 | 6 |
| 2022 | 16 |
| 2021 | 45 |
| 2020 | 51 |