Consumption, Aggregate Wealth, and Expected Stock Returns
Tóm tắt
This paper studies the role of fluctuations in the aggregate consumption–wealth ratio for predicting stock returns. Using U.S. quarterly stock market data, we find that these fluctuations in the consumption–wealth ratio are strong predictors of both real stock returns and excess returns over a Treasury bill rate. We also find that this variable is a better forecaster of future returns at short and intermediate horizons than is the dividend yield, the dividend payout ratio, and several other popular forecasting variables. Why should the consumption–wealth ratio forecast asset returns? We show that a wide class of optimal models of consumer behavior imply that the log consumption–aggregate wealth (human capital plus asset holdings) ratio summarizes expected returns on aggregate wealth, or the market portfolio. Although this ratio is not observable, we provide assumptions under which its important predictive components for future asset returns may be expressed in terms of observable variables, namely in terms of consumption, asset holdings and labor income. The framework implies that these variables are cointegrated, and that deviations from this shared trend summarize agents' expectations of future returns on the market portfolio.
Từ khóa
Tài liệu tham khảo
Campbell John Y., 1989, Macroeconomics Annual
Campbell John Y., 1991, Macroeconomics Annual
1999 Federal Reserve Bank of Kansas City Todd Clark McCracken Michael Tests of equal forecast accuracy and encompassing for nested models
Cochrane John H., 1997, Where is the market going? Uncertain facts and novel theories, Economic Perspectives, Federal Reserve Bank of Chicago 11, 1
Diebold Francis, 1995, Comparing predictive accuracy, Journal of Business and Economic Statistics, 12, 253
1999 University of Washington Wayne Ferson Sarkissian Sergei Simin Timothy Spurious regressions in financial economics?
1999 University of California Los Angeles Amit Goyal Welch Ivo Predicting the equity premium
Shmuel Kandel Stambaugh Robert L. White Rodney 1989 Wharton School University of Pennsylvania 42 88
Ludvigson Sydney, 1999, How important is the stock market effect on consumption?, Economic Policy Review, Federal Reserve Bank of New York, 5, 29
1999 Louisiana State University Michael McCracken Asymptotics for out‐of‐sample tests of causality
Nelson Charles C., 1993, Predictable stock returns: The role of small sample bias, Journal of Finance, 43, 641, 10.1111/j.1540-6261.1993.tb04731.x