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Consumption asymmetry and the stock market: New evidence through a threshold adjustment model

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  • Nicholas Apergis

    (University of Macedonia, Greece)

  • Stephen M. Miller

    (University of Connecticut and University of Nevada, Las Vegas)

Abstract

This paper investigates whether stock market wealth affects real consumption asymmetrically through a threshold adjustment model. The empirical findings for the US show that wealth produces an asymmetric effect on real consumption, with negative 'news' affecting consumption less than positive 'news.' Thus, policy makers may want to focus more attention on preventing asset 'bubbles' than on responding to negative asset shocks.

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File URL: http://web2.uconn.edu/economics/working/2005-08.pdf
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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2005-08.

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Length: 19 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:uct:uconnp:2005-08

Note: The authors express special thanks to Angelos Antzoulatos and Plutarchos Sakellaris for their comments on an earlier draft of this paper and to Giannis Litsios, a charismatic doctorate candidate, for his valuable assistance with the software used in this work. Needless to say, the usual disclaimer applies.
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Postal: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063
Phone: (860) 486-4889
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Web page: http://www.econ.uconn.edu/
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Keywords: Consumption; Stock market; Wealth effect; Asymmetry;

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References

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  1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
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Citations

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Cited by:
  1. Robert Paul Berben & Kerstin Bernoth & Mauro Mastrogiacomo, 2006. "Households' Response to Wealth Changes: Do Gains or Losses make a Difference?," DNB Working Papers 090, Netherlands Central Bank, Research Department.
  2. Gupta, Rangan & Modise, Mampho P., 2012. "South African stock return predictability in the context data mining: The role of financial variables and international stock returns," Economic Modelling, Elsevier, vol. 29(3), pages 908-916.
  3. Till van Treeck, 2008. "Asymmetric income and wealth effects in a non-linear error correction model of US consumer spending," IMK Working Paper 06-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  4. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2012. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201224, University of Pretoria, Department of Economics.

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