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Consumption, Wealth and Expected Stock Returns in Australia

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  • LANCE A. FISHER
  • GRAHAM M. VOSS

Abstract

The present paper investigates the relationship between consumption, labour income and household wealth in Australia within the inter-temporal consumption framework developed by Lettau and Ludvigson (2001). We first test for a long-run relationship among these series and then investigate whether private dissaving, measured as the deviation from the estimated relationship, has information content for future stock returns. We find that private dissaving has predictive power for quarterly returns on the ASX200 and for returns over long holding periods. The recent substantial decline in private dissaving suggests that consumers view the recent surge in non-financial wealth as transitory and expect a correction. Copyright © 2004 Economic Society of Australia..

Suggested Citation

  • Lance A. Fisher & Graham M. Voss, 2004. "Consumption, Wealth and Expected Stock Returns in Australia," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 359-372, December.
  • Handle: RePEc:bla:ecorec:v:80:y:2004:i:251:p:359-372
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    Cited by:

    1. Fisher, Lance A. & Otto, Glenn & Voss, Graham M., 2010. "The response of Australian consumption to housing wealth," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 284-299, March.
    2. Ahec Šonje, Amina & Čeh Časni, Anita & Vizek, Maruška, 2014. "The effect of housing and stock market wealth on consumption in emerging and developed countries," Economic Systems, Elsevier, vol. 38(3), pages 433-450.
    3. Thomas Nitschka, 2005. "The U.S. consumption-wealth ratio and foreign stock markets: International evidence for return predictability," Money Macro and Finance (MMF) Research Group Conference 2005 22, Money Macro and Finance Research Group.
    4. Frank Schmid, 2013. "Wealth Effects on Consumption in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(I), pages 87-110, March.
    5. Nitschka, Thomas, 2010. "Cashflow news, the value premium and an asset pricing view on European stock market integration," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1406-1423, November.
    6. Thomas Nitschka, 2012. "Global and country-specific business cycle risk in time-varying excess returns on asset markets," Working Papers 2012-10, Swiss National Bank.
    7. Thomas Nitschka, 2010. "International Evidence for Return Predictability and the Implications for Long-Run Covariation of the G7 Stock Markets," German Economic Review, Verein für Socialpolitik, vol. 11, pages 527-544, November.
    8. Della Corte, Pasquale & Sarno, Lucio & Valente, Giorgio, 2010. "A century of equity premium predictability and the consumption-wealth ratio: An international perspective," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 313-331, June.
    9. Alain Galli, 2016. "Sticky consumption and wealth effects in Switzerland," Working Papers 2016-14, Swiss National Bank.
    10. Hamburg, Britta & Hoffmann, Mathias & Keller, Joachim, 2005. "Consumption, wealth and business cycles: why is Germany different?," Discussion Paper Series 1: Economic Studies 2005,16, Deutsche Bundesbank.
    11. Britta Hamburg & Mathias Hoffmann & Joachim Keller, 2008. "Consumption, wealth and business cycles in Germany," Empirical Economics, Springer, vol. 34(3), pages 451-476, June.
    12. Alain Galli, 2016. "How reliable are cointegration-based estimates for wealth effects on consumption? Evidence from Switzerland," Working Papers 2016-03, Swiss National Bank.
    13. David M. Williams, 2010. "Consumption, wealth and credit liberalisation in Australia," Economics Series Working Papers 492, University of Oxford, Department of Economics.
    14. Yasemin Barlas Ozer & Kam-Ki Tang, "undated". "An Empirical Analysis of Financial and Housing Wealth Effects on Consumption in Turkey," MRG Discussion Paper Series 2809, School of Economics, University of Queensland, Australia.

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