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Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets

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  • Guglielmo Maria Caporale
  • Ricardo M. Sousa

Abstract

In this paper, we show, using the consumer’s budget constraint, that the residuals of the trend relationship among consumption, aggregate wealth, and labour income should predict both stock returns and housing returns. We use quarterly data for a panel of 31 emerging economies and find that, when agents expect future stock returns to be higher, they will temporarily allow consumption to rise. Regarding housing returns, if housing assets are complementary to stocks, then investors react in the same way. If, however, the increase in the exposure through risky assets is achieved by lowering the share of wealth held in the form of housing (i.e., when stock and housing assets are substitutes), then they will temporarily reduce their consumption.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3601.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3601

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Keywords: consumption; wealth; stock returns; housing returns; emerging markets;

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References

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Cited by:
  1. Guglielmo Maria Caporale & Ricardo M. Sousa, 2011. "Are Stock and Housing Returns Complements or Substitutes? Evidence from OECD Countries," CESifo Working Paper Series 3621, CESifo Group Munich.
  2. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2012. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201224, University of Pretoria, Department of Economics.

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