Accessibility navigation


Does consumption-wealth ratio signal stock returns? VECM results for Germany

Xu, F. (2005) Does consumption-wealth ratio signal stock returns? VECM results for Germany. Economics Bulletin, 3 (30). pp. 1-13. ISSN 1545-2921

Full text not archived in this repository.

It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing.

Official URL: http://www.economicsbulletin.com/

Abstract/Summary

This paper studies the signalling effect of the consumption−wealth ratio (cay) on German stock returns via vector error correction models (VECMs). The effect of cay on U.S. stock returns has been recently confirmed by Lettau and Ludvigson with a two−stage method. In this paper, performance of the VECMs and the two−stage method are compared in both German and U.S. data. It is found that the VECMs are more suitable to study the effect of cay on stock returns than the two−stage method. Using the Conditional−Subset VECM, cay signals real stock returns and excess returns in both data sets significantly. The estimated coefficient on cay for stock returns turns out to be two times greater in U.S. data than in German data. When the two−stage method is used, cay has no significant effect on German stock returns. Besides, it is also found that cay signals German wealth growth and U.S. income growth significantly.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:31573
Publisher:AccessEcon

University Staff: Request a correction | Centaur Editors: Update this record

Page navigation