INVESTORS' BEHAVIOUR
WHAT IS THE REVERSE WEALTH EFFECT?
Published By Livemint
| 31 Jan, 2023
Reverse wealth effect is the psychological impact of bearish market on investors
Under this effect, investors reduce their consumption in the wake of declining value of their shares
Experts say this behaviour emerges out of insecurity without any rational basis
In contrast to reverse wealth effect, consumers spend more with rising asset prices
Psychological impact of rise in share market price on investors’ spending is called as wealth effect
Experts believe wealth effect also leads to rise in inflation
Impact of wealth effect and reverse wealth effect can be felt in countries with extensive investments
However, such psychological effects have limited impact in India