DP15191 Financial Returns to Household Inventory Management

Author(s): Scott R. Baker, Stephanie Johnson, Lorenz Kueng
Publication Date: August 2020
Keyword(s): financial returns, household working capital, Inventory, Stock Market Participation, stockpiling
JEL(s): D11, D12, D13, D14, E21, G11, G51
Programme Areas: Public Economics, Financial Economics, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15191

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.