Discussion Paper Details

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Title: Financial Returns to Household Inventory Management

Author(s): Scott R. Baker, Stephanie Johnson and Lorenz Kueng

Publication Date: August 2020

Keyword(s): financial returns, household working capital, Inventory, Stock Market Participation and stockpiling

Programme Area(s): Financial Economics, Monetary Economics and Fluctuations and Public Economics

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.

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Bibliographic Reference

Baker, S, Johnson, S and Kueng, L. 2020. 'Financial Returns to Household Inventory Management'. London, Centre for Economic Policy Research.