The spirit of capitalism among the income classes

This paper tests the consumption-based capital asset model within the context of the spirit of capitalism. The spirit of capitalism asserts that consumers gain utility not just from consumption of goods and services, but also from the social status obtained from wealth. We examine two asset pricing...

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Bibliographic Details
Published in:Review of financial economics 2014-01, Vol.23 (1), p.1-9
Main Authors: Smoluk, H.J., Voyer, John
Format: Article
Language:English
Subjects:
Asset pricing
Capital assets
Capitalism
Cointegration
Consumption
E21
Family income
G12
Households
N39
Social classes
Studies
Utility functions
Wealth
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Summary:This paper tests the consumption-based capital asset model within the context of the spirit of capitalism. The spirit of capitalism asserts that consumers gain utility not just from consumption of goods and services, but also from the social status obtained from wealth. We examine two asset pricing models developed by Bakshi and Chen (1996) that employ wealth in the utility function, for households sorted by income quintiles. In the first model, households obtain utility from both consumption and the social status that comes from their own wealth. In the second model, households gain utility from both consumption and the social status obtained from their own wealth relative to the wealth of other peer households. Our results indicate that both models are inconsistent with the data regardless of income. However, using cointegration methods as a diagnostic tool, we find that the data are “loosely” consistent with the spirit of capitalism, at least for the upper income quintiles.
ISSN:1058-3300
1873-5924
DOI:10.1016/j.rfe.2013.05.006