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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.

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File URL: http://hdl.handle.net/10.1080/13504851.2011.591723
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 19 (2012)
Issue (Month): 7 (May)
Pages: 619-622

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Handle: RePEc:taf:apeclt:v:19:y:2012:i:7:p:619-622

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Cited by:
  1. Fredj Jawadi & Ricardo M. Sousa, 2012. "Modelling Money Demand: Further Evidence from an International Comparison," NIPE Working Papers 23/2012, NIPE - Universidade do Minho.
  2. 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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