Stock market and aggregate consumption asymmetry: evidence from Malaysia
AbstractPurpose – The purpose of this paper is to analyze the influences of real share prices on aggregate consumption for Malaysia with the focus on whether there is asymmetry in the long-run relation of the two variables. Design/methodology/approach – The paper specifies aggregate consumption to depend on real income and real share prices. Alternatively, imposing long-run budget constraint, the paper specifies the relation between aggregate consumption and real share prices as ratio to real income. Then, it applies an asymmetric cointegration and error correction modeling. Findings – The cointegration tests indicate the presence of a long-run relation between consumption-income ratio and share price-income ratio. More interestingly, while changes in share prices exert short-run causal influences on Malaysia's private consumption, evidence is found for the adjustments of consumption – income ratio to the long-run equilibrium path only when it is above its long-run value. The paper interprets the finding as suggesting downward revisions in the consumption patterns when there are adverse shocks in share prices and, accordingly, supports the existence of especially negative wealth effect for Malaysia. Research limitations/implications – Owing to data limitations, the paper relies on aggregate consumption and aggregate income data. It acknowledges that the sum of non-durable consumption and flow-of-services from durable purchases and labor income are more appropriate measures of, respectively, consumption and real income. Originality/value – The findings have important implications for understanding consumption behavior in a developing country and can provide insight on the effectiveness of monetary policy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Studies in Economics and Finance.
Volume (Year): 27 (2010)
Issue (Month): 1 (March)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Apergis, Nicholas & Miller, Stephen M., 2006.
"Consumption asymmetry and the stock market: Empirical evidence,"
Elsevier, vol. 93(3), pages 337-342, December.
- Nicholas Apergis & Stephen M. Miller, 2004. "Consumption Asymmetry and the Stock Market: Empirical Evidence," Working papers 2004-43, University of Connecticut, Department of Economics, revised Apr 2006.
- Mansor H. Ibrahim & Hassanuddeen Aziz, 2003. "Macroeconomic variables and the Malaysian equity market: A view through rolling subsamples," Journal of Economic Studies, Emerald Group Publishing, vol. 30(1), pages 6-27, January.
- Joseph P. Byrne & E. Philip Davis, 2003. "Disaggregate Wealth and Aggregate Consumption: an Investigation of Empirical Relationships for the G7," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(2), pages 197-220, 05.
- Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
- Walter Enders & Selahattin Dibooglu, 2001. "Long-Run Purchasing Power Parity with Asymmetric Adjustment," Southern Economic Journal, Southern Economic Association, vol. 68(2), pages 433-445, October.
- Martha Starr-McCluer, 2002.
"Stock Market Wealth and Consumer Spending,"
Western Economic Association International, vol. 40(1), pages 69-79, January.
- Enders, Walter & Siklos, Pierre L, 2001.
"Cointegration and Threshold Adjustment,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 19(2), pages 166-76, April.
- Tom Doan, . "ENDERSIKLOS: RATS procedure to perform Enders-Siklos test for cointegration with threshold effect," Statistical Software Components RTS00064, Boston College Department of Economics.
- Tom Doan, . "RATS programs to replicate Enders-Siklos(2001) JBES paper on threshold cointegration," Statistical Software Components RTZ00053, Boston College Department of Economics.
- James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
- Laurence Boone & Claude Giorno & Pete Richardson, 1998. "Stock Market Fluctuations and Consumption Behaviour: Some Recent Evidence," OECD Economics Department Working Papers 208, OECD Publishing.
- Xiaohui Liu & Chang Shu, 2004. "Consumption and stock markets in Asian economies," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(4), pages 483-496.
- Domian, Dale L. & Louton, David A., 1997. "A threshold autoregressive analysis of stock returns and real economic activity," International Review of Economics & Finance, Elsevier, vol. 6(2), pages 167-179.
- Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
- Holmes, Mark J. & Shen, Xin, 2013. "A note on the average propensity to consume, wealth and threshold adjustment," Economic Modelling, Elsevier, vol. 35(C), pages 309-313.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.