We investigate how households adjust their shopping behavior in response to financial shocks. Our results show that households visit stores more frequently but buy fewer products and spend less in financial downturns. When money is tight, they switch to cheaper products, use more coupons, and reduce bulk purchases. During financially stressful times, households shrink the set of stores that they visit, mainly by discarding high-end stores, and varying the stores within the same set. Our store-level analysis shows that heightened financial stress in the area is associated with a decline in sales of all products, but much less so for cheaper products. Our results underscore the pivotal role of product markets in facilitating consumption smoothing.

We show that mutual funds worldwide provide substantial international exposure through their domestic holdings of multinationals. The international exposure of domestic funds increases, on average, by 32 percentage points when we consider international corporate diversification. We find that funds with higher indirect international exposure perform better in both the cross-section and the time series. This effect is primarily driven by the fund managers’ ability to invest in multinationals, rather than the performance of those multinationals. Our findings support the hypothesis that international diversification from multinationals reduces the transaction and information costs of investing abroad.