Consumption Asymmetry and the Stock Market: Further Evidence (original) (raw)
Related papers
Consumption asymmetry and the stock market: Empirical evidence
2006
This paper examines whether US stock-market value affects consumption asymmetrically. Using cointegration and error-correction methodology, the results confirm that stock-market value asymmetrically affects real per capita consumption. Negative “news” affects consumption more than positive “news.”
Consumption asymmetry and the stock market: new evidence through a threshold adjustment model
2005
Abstract This paper investigates whether stock market wealth affects real consumption asymmetrically through a threshold adjustment model. The empirical findings for the US show that wealth produces an asymmetric effect on real consumption, with negative'news' affecting consumption less than positive'news.'Thus, policy makers may want to focus more attention on preventing asset'bubbles' than on responding to negative asset shocks.
Structural Break or Asymmetry? An Empirical Study of the Stock Wealth Effect on Consumption
2004
The purpose of this paper is to examine whether the stock wealth effect of consumption exhibits structural change(s) or behaves asymmetrically over business cycles. We first perform a general test of linearity for the behavior of aggregate consumption in response to changes in stock wealth based on Hamilton's (2001) approach. When a nonlinear relation is discovered, we move on to investigate the source(s) of this nonlinearity. We consider two types of nonlinearity: structural break and asymmetry. It is of interest to policy makers whether the sensitivity of consumption to changes in households' financial wealth shows a significant shift over time due to institutional and policy changes, and whether consumption is likely to decline more due to stock wealth shrinkage when the economy is in a downturn, as has been found in investment.
How important is the stock market effect on consumption?
Economic Policy Review, 1999
Many argue that the astonishing growth in Americans' stock portfolios in the 1990s has been a major force behind the growth of consumer spending. This article reviews the relationship between stock market movements and consumption. Using various econometric techniques and ...
1998
he second half of the 1990s has seen substantial changes in the wealth of American households, primarily owing to movements in the stock market. From mid-1994 to mid-1997, the aggregate value of household sector equity holdings (including those owned by nonprofits, mutual funds, and pensions and other fiduciaries) roughly doubled, for a dollar gain of about 5.2trillion.1Sincethen,stockmarketvaluesonbalancehavecontinuedtorise,buttherehavebeenmassivefluctuationswithinawideband;thedollarvalueofmovementswithintheband—fromthelowinOctober1997totherecenthighs—hasbeengreaterthan5.2 trillion. 1 Since then, stock market values on balance have continued to rise, but there have been massive fluctuations within a wide band; the dollar value of movements within the band—from the low in October 1997 to the recent highs—has been greater than 5.2trillion.1Sincethen,stockmarketvaluesonbalancehavecontinuedtorise,buttherehavebeenmassivefluctuationswithinawideband;thedollarvalueofmovementswithintheband—fromthelowinOctober1997totherecenthighs—hasbeengreaterthan3.0 trillion. 2 T These enormous swings in wealth no doubt have
Stock Market Fluctuations and Consumption Behaviour: some sectoral estimates
1998
72560 Document complet disponible sur OLIS dans son format d'origine Complete document available on OLIS in its original formatECO/WKP(98)21 ABSTRACT/RÉSUMÉ This paper examines the likely influence of recent stock market fluctuations on major OECD economies, focusing on wealth effects and consumption. After reviewing the relevant theoretical framework and available empirical evidence, consumption functions are estimated for the US including the influence of financial wealth. The resulting estimates of the marginal propensity to consume out of financial wealth are extrapolated to other G7 countries, allowing for differences in stock market capitalisation, and compared with ones obtained more directly from consumption functions that include stock market prices as an explanatory variable. Simulations are then carried out to assess the potential world impact of a major fall in stock market prices in the G7 countries using a version of the OECD INTERLINK model which embodies the lat...
Aggregate consumption spending, the stock market and asymmetric error correction
Quantitative Finance, 2004
In this study, we show how changes in wealth resulting from unanticipated changes in the value of equity holdings begin a process whereby households alter consumption growth in order to close the gap between actual and target spending. Because of changing uncertainty or equity price volatility over the stock market cycle, we found the time path of this adjustment to exhibit near-random walk behaviour during stock market downturns. Conversely, during 'boom' periods, e.g. when the value of equities held by households was greater than the threshold, the growth in consumer spending was quick to eliminate the disparity between actual and target spending.
The Financial Markets and Wealth Effects on Consumption: an Experimental Analysis
2003
The paper investigates the effects exerted by the ownership of quoted equities on intertemporal wealth allocation. To this end, it reports an experiment conducted with human subjects. The fact that an increasing share of household balances is allocated to equities raises numerous questions on the nature and magnitude of so-called 'wealth effects'. The traditional theories are based on the assumption of perfect rational agents and do not consider wealth effects in detail.
Mutual funds and the evolving long-run effects of stock wealth on U.S. consumption
Journal of Economics and Business, 2006
Lower mutual fund loads have plausibly boosted the stock wealth elasticity of U.S. consumption by enhancing stock liquidity and arguably by inducing stock ownership among middle-income families, consistent with theory and cross-section data (Guiso, Haliassios, and Jappelli (2003), Haliassios (2002), Heaton and Lucas (1996, 2000), and Vissing-Jorgensen (2002)). In load-modified models, the stock wealth elasticity is declining in loads and more stable long-run wealth and income coefficients arise, especially controlling for mortgage refinancing and equity withdrawal activity. Modified models imply that the stock wealth elasticity has risen, while conventional models overestimate the wealth and underestimate the income elasticities of consumption.