The relationship between financial asset returns and the well-being of US households

Abstract

This note considers the effect of changes on the well-being of US residents owing to changes in the value of various financial assets. Ordinary least squares estimates reveal that equity market returns have a significant and asymmetric, impact on the well-being. This result is likely the result of a wealth effect whereby rising (falling) stock markets increase (decrease) the ability to meet basic needs and this contributes to a shifting assessment of life-situation and overall well-being.

Keywords:

• well-being
• asset returns
• S&P 500

JEL Classification:

• G10
• R2
• C20

Notes

¹ Source: Gallup, Inc. and Healthways, Inc. © 2009.

² Data for the Well-Being Index, together with a complete methodology, is available via www.well-beingindex.com

³ Source: Federal Reserve Balance Sheet of Households, 6 December 2012: http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf