Terrorist Attacks and Household Consumption Smoothing through Credit Cards

Prof. Xin ZOU, Assistant Professor, Hong Kong Baptist University

Date: 28 September 2022 (Wednesday)
Time: 3:00pm – 4:00pm
Venue: Online via Zoom
Host: Prof. Endong YANG, Assistant Professor of Finance
Zoom Link: https://umac.zoom.us/j/94080892550 


This paper uses high-frequency individual-level data on financial activities to examine the causal impact of terrorist attacks on household consumption smoothing through credit cards. We document that attack-hit consumers increase the weekly share of credit card spending by 28 basis points more than the non-attack-hit consumers during the five weeks on and after the terrorist attacks. Consumption smoothing is stronger when the impact of the attack is larger. Consistent with a precautionary liquidity demand with mental accounting mechanism, we document a stronger response among individuals with higher liquidity constraints, a significant increase in liquid financial asset balance, and a shift of spending from debit accounts to credit cards. We also observe an increase in both risky and safer investments. Consumption smoothing is quick but non-persistent and does not lead to significant long-term impacts on credit card debt and salary income. Overall, our study highlights the real economic impact of uncertainty shocks on micro-level household consumption smoothing.



Prof. Xin ZOU is an Assistant Professor of Finance in Department of Finance and Decision Science at School of Business, Hong Kong Baptist University. She obtained a PhD in Finance from NUS Business School, National University of Singapore. Her main research interests are Household Finance, Household Sustainability, Digitization, E-commerce, and FinTech, Financial Intermediaries, and Behavioral Finance. She is the recipient of an external General Research Fund from the University Grants Committee of Hong Kong. Her research is accepted for publication at top academic journals such as Journal of Financial Economics, American Economic Journal: Economic Policy, Management Science, Journal of Banking and Finance, and AEA Papers and Proceedings.


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