The Consumption-Wealth Ratio, Real Estate Wealth, and the Japanese Stock Market
AbstractThe 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 better than, the consumption-wealth ratio calculated with only financial wealth data. While the scaled factor model with the consumption-wealth ratio proposed by Lettau 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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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Discussion Paper Series with number a504.
Length: 32 p.
Date of creation: Jul 2008
Date of revision:
Note: July 13, 2008, The previous version of this paper was circulated under the title of "The Consumption-Wealth Ratio and the Japanese Stock Market". We made substantial changes to the calculation of the variables used in the empirical analyses in this current version.
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Web page: http://www.ier.hit-u.ac.jp/
More information through EDIRC
consumption-wealth ratio; cointegration; cross-section of stock returns;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-14 (All new papers)
- NEP-BEC-2009-02-14 (Business Economics)
- NEP-FMK-2009-02-14 (Financial Markets)
- NEP-MAC-2009-02-14 (Macroeconomics)
- NEP-URE-2009-02-14 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"The conditional CAPM and the cross-section of expected returns,"
208, Federal Reserve Bank of Minneapolis.
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- Paul P.J. Gao & Kevin X.D. Huang, 2008.
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Annals of Economics and Finance,
Society for AEF, vol. 9(1), pages 1-37, May.
- Paul Gao & Kevin X.D. Huang, 2004. "Aggregate consumption-wealth ratio and the cross-section of stock returns: some international evidence," Research Working Paper RWP 04-07, Federal Reserve Bank of Kansas City.
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NBER Working Papers
13896, National Bureau of Economic Research, Inc.
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NBER Working Papers
9959, National Bureau of Economic Research, Inc.
- Hanno N. Lustig & Stijn G. Van Nieuwerburgh, 2005. "Housing Collateral, Consumption Insurance, and Risk Premia: An Empirical Perspective," Journal of Finance, American Finance Association, vol. 60(3), pages 1167-1219, 06.
- Kohei Aono & Tokuo Iwaisako, 2011. "Forecasting Japanese Stock Returns with Financial Ratios and Other Variables," Asia-Pacific Financial Markets, Springer, vol. 18(4), pages 373-384, November.
- Márquez, Elena & Martínez-Cañete, Ana R. & Pérez-Soba, Inés, 2013. "Wealth shocks, credit conditions and asymmetric consumption response: Empirical evidence for the UK," Economic Modelling, Elsevier, vol. 33(C), pages 357-366.
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