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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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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.386773.de/dp1158.pdf
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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. Eugene F. Fama, . "Market Efficiency, Long-term Returns, and Behavioral Finance," CRSP working papers 340, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  13. Guglielmo Maria Caporale & Ricardo M. Sousa, 2011. "Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets," CESifo Working Paper Series 3601, CESifo Group Munich.
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  17. Nicole Davis & Ali Kutan, 2003. "Inflation and output as predictors of stock returns and volatility: international evidence," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(9), pages 693-700.
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  23. repec:fth:harver:1435 is not listed on IDEAS
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Cited by:
  1. Guglielmo Maria Caporale & Ricardo M. Sousa, 2011. "Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets," CESifo Working Paper Series 3601, CESifo Group Munich.

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