Myunghwan Andrew Lee

This paper studies how equity return beliefs shape household consumption. I combine a randomized information experiment among Korean households with directly elicited expectations and transaction-based spending. Information about past market returns shifts expectations without changing the market value of existing equity holdings. Positive return corrections raise expected returns even at long horizons, yet reduce subsequent spending among stockholders, consistent with strong intertemporal substitution. I develop a consumption-saving model with learning about persistent expected returns, disciplined by these experimental responses. The quantitative analysis suggests that belief-induced saving offsets three-quarters of the consumption increase that stock price gains would generate if return beliefs remained unchanged. Return beliefs therefore play a central role in the transmission of  stock price movements to household consumption.