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Wealth-to-income ratio and stock returns: evidence from the Euro Area

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  • Ricardo M. Sousa

Abstract

I find that when the ratio of asset wealth to human wealth falls, investors become more exposed to labour income shocks and demand a higher risk premium for stocks. I show that the residuals of the trend relationship among wealth and labour income, wy , predict future stock returns in the Euro Area. The results are robust to additional control variables and show the superiority of wy vis-a-vis other benchmark models.

Suggested Citation

  • Ricardo M. Sousa, 2012. "Wealth-to-income ratio and stock returns: evidence from the Euro Area," Applied Economics Letters, Taylor & Francis Journals, vol. 19(7), pages 619-622, May.
  • Handle: RePEc:taf:apeclt:v:19:y:2012:i:7:p:619-622
    DOI: 10.1080/13504851.2011.591723
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    Cited by:

    1. Margot Quijano, 2013. "Consumption, change in expectations and equity returns," Applied Financial Economics, Taylor & Francis Journals, vol. 23(24), pages 1839-1851, December.
    2. Fredj Jawadi & Ricardo M. Sousa, 2013. "Modelling money demand: further evidence from an international comparison," Applied Economics Letters, Taylor & Francis Journals, vol. 20(11), pages 1052-1055, July.
    3. Christou, Christina & Gupta, Rangan & Jawadi, Fredj, 2021. "Does inequality help in forecasting equity premium in a panel of G7 countries?," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    4. Ren, Yu & Yuan, Yufei & Zhang, Yang, 2014. "Human capital, household capital and asset returns," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 11-22.

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