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Are Stock and Housing Returns Complements or Substitutes?: Evidence from OECD Countries

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  • Guglielmo Maria Caporale
  • Ricardo M. Souza

Abstract

In this paper we use a representative consumer model to analyse the equilibrium relation between the transitory deviations from the common trend among consumption, aggregate wealth, and labour income, cay, and focus on the implications for both stock returns and housing returns. The evidence based on data for 15 OECD countries shows that when agents expect future stock returns to be higher, they will temporarily allow consumption to rise. Regarding housing returns, if housing assets are seen as complements to stocks, then investors react in the same way, but if they are instead treated as substitutes consumption will be temporarily reduced.

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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1158.

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Length: 15 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1158

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Keywords: consumption; wealth; stock returns; housing returns; OECD countries;

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  1. Lettau, Martin & Ludvigson, Sydney, 1999. "Consumption, Aggregate Wealth and Expected Stock Returns," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2223, C.E.P.R. Discussion Papers.
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  8. Sousa, Ricardo M., 2010. "Consumption, (dis)aggregate wealth, and asset returns," Journal of Empirical Finance, Elsevier, Elsevier, vol. 17(4), pages 606-622, September.
  9. Campbell, John, 1996. "Understanding Risk and Return," Scholarly Articles 3153293, Harvard University Department of Economics.
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  15. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(2), pages 246-73, April.
  16. Guglielmo Maria Caporale & Ricardo M. Sousa, 2011. "Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets," NIPE Working Papers, NIPE - Universidade do Minho 32/2011, NIPE - Universidade do Minho.
  17. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  18. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, American Finance Association, vol. 51(1), pages 55-84, March.
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  21. repec:fth:harver:1435 is not listed on IDEAS
  22. Fisher, Lance A. & Otto, Glenn & Voss, Graham M., 2010. "The response of Australian consumption to housing wealth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(1), pages 284-299, March.
  23. Emmanuel De Veirman & Ashley Dunstan, 2008. "How do Housing Wealth, Financial Wealth and Consumption Interact? Evidence from New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/05, Reserve Bank of New Zealand.
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Cited by:
  1. Guglielmo Maria Caporale & Ricardo M. Souza, 2011. "Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets," Discussion Papers of DIW Berlin 1159, DIW Berlin, German Institute for Economic Research.

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