Changes in the risk structure of stock returns. Consumer Confidence and the Dotcom Bubble
AbstractChanges in the risk structure of stock returns may sometimes be very revealing. We examine economic variables that help explain principal components in UK stock returns, 01/1985 to 12/2001. The loading pattern on explanatory variables for the first component in a ‘bubble’ period is distinctive and consistent with a bubble/crash market. The second component shows a loading pattern on a Consumer Confidence variable in a pre-bubble period only. We observe apparently systematic changes in the structure of risk, and conjecture that Consumer Confidence captures a change in market sentiment that could be a signal for the evolution of stock prices.
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Bibliographic InfoPaper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_15.
Date of creation: Jun 2007
Date of revision: Jun 2007
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Macroeconomic variables; consumer confidence; stock returns; principal components analysis;
Other versions of this item:
- Leger, Lawrence & Leone, Vitor, 2008. "Changes in the risk structure of stock returns: Consumer Confidence and the dotcom bubble," Review of Financial Economics, Elsevier, vol. 17(3), pages 228-244, August.
- G1 - Financial Economics - - General Financial Markets
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