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Consumption, Wealth and Expected Stock Returns in Australia

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  • LANCE A. FISHER
  • GRAHAM M. VOSS

Abstract

The present paper investigates the relationship between consumption, labour income and household wealth in Australia within the inter-temporal consumption framework developed by Lettau and Ludvigson (2001). We first test for a long-run relationship among these series and then investigate whether private dissaving, measured as the deviation from the estimated relationship, has information content for future stock returns. We find that private dissaving has predictive power for quarterly returns on the ASX200 and for returns over long holding periods. The recent substantial decline in private dissaving suggests that consumers view the recent surge in non-financial wealth as transitory and expect a correction. Copyright © 2004 Economic Society of Australia..

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 80 (2004)
Issue (Month): 251 (December)
Pages: 359-372

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Handle: RePEc:bla:ecorec:v:80:y:2004:i:251:p:359-372

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Cited by:
  1. David M. Williams, 2010. "Consumption, wealth and credit liberalisation in Australia," Economics Series Working Papers 492, University of Oxford, Department of Economics.
  2. Britta Hamburg & Mathias Hoffmann & Joachim Keller, 2005. "Consumption, Wealth and Business Cycles in Germany," CESifo Working Paper Series 1443, CESifo Group Munich.
  3. Hamburg, Britta & Hoffmann, Mathias & Keller, Joachim, 2005. "Consumption, wealth and business cycles: why is Germany different?," Discussion Paper Series 1: Economic Studies 2005,16, Deutsche Bundesbank, Research Centre.
  4. Della Corte, Pasquale & Sarno, Lucio & Valente, Giorgio, 2010. "A century of equity premium predictability and the consumption-wealth ratio: An international perspective," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 313-331, June.
  5. Thomas Nitschka, 2005. "The U.S. consumption-wealth ratio and foreign stock markets: International evidence for return predictability," Money Macro and Finance (MMF) Research Group Conference 2005 22, Money Macro and Finance Research Group.
  6. Thomas Nitschka, 2012. "Global and country-specific business cycle risk in time-varying excess returns on asset markets," Working Papers 2012-10, Swiss National Bank.
  7. Thomas Nitschka, 2007. "Cashflow news, the value premium and an asset pricing view on European stock market integration," IEW - Working Papers 339, Institute for Empirical Research in Economics - University of Zurich.
  8. Fisher, Lance A. & Otto, Glenn & Voss, Graham M., 2010. "The response of Australian consumption to housing wealth," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 284-299, March.
  9. Thomas Nitschka, 2007. "International evidence for return predictability and the implications for long-run covariation of the G7 stock markets," IEW - Working Papers 338, Institute for Empirical Research in Economics - University of Zurich.
  10. Yasemin Barlas Ozer & Kam-Ki Tang, . "An Empirical Analysis of Financial and Housing Wealth Effects on Consumption in Turkey," MRG Discussion Paper Series 2809, School of Economics, University of Queensland, Australia.

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