The current account and stock returns
AbstractIn this paper, I use stock return data to test an intertemporal model of the current account. I find that the model performs well in three countries: the U.K., Canada, and Japan. Hall [Hall, R.E., 1978. Stochastic implication of the life cycle-permanent income hypothesis: theory and evidence. J. Polit. Econ. 86 (6), 971-987] points out that because stock price predicts the future state of the economy, it predicts consumption. Assuming that consumption depends on permanent income, my empirical finding indicates that a representative agent smoothes consumption based on stock market information. In other words, stock market returns yield information about permanent income.
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Bibliographic InfoArticle provided by Elsevier in its journal Research in International Business and Finance.
Volume (Year): 23 (2009)
Issue (Month): 3 (September)
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Current account Permanent income Stock return;
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