The first contribution of this paper, following the works of Lettau and Ludvigson (2001a,b), is construction of the Japanese consumption-wealth ratio data series and to examine whether it explains Japanese stock market data. We find that the consumption- wealth ratio does not predict future stock returns, but it does help to explain the cross-section of Japanese stock returns. The second contribution of the paper is that we propose new consumption-wealth ratios in terms of which we more explicitly deal with household real estate wealth utilizing Japanese aggregate level data. Such ``real estate augmented'' consumption-wealth ratios work in a similar way, but perform bet- ter than, the consumption-wealth ratio calculated with only financial wealth data. While the scaled factor model with the consumption-wealth ratio proposed by Let- tau and Ludvigson performs relatively well with Japanese data, the book-to-market related anomaly pointed out by Jagannathan et al. (1998) remains strong.
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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Discussion Paper Series with number
a504.
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