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The Role of Consumer Confidence as a Leading Indicator on Stock Returns: A Markov Switching Approach

Author

Listed:
  • Koy AYBEN

    (Istanbul Commerce University, Istanbul, Turkey)

  • Akkaya MURAT

    (Istanbul Gelisim University, Istanbul, Turkey)

Abstract

Investor’s psychological and emotional factors lead to irrationality in financial decision making and anomalies in prices. Investor sentiment and psychology help to elucidate phenomena in financial markets that cannot be explained by traditional theory. The aim of this study is two-fold: it investigates whether mutual regime switching behavior exists between the consumer indices and equity index, and examines their dynamics in response to each other in different regimes. This study applies the Markov Regime Switching model to monthly data from the BIST100 Return Index, Bloomberg Confidence Index, TUIK Confidence Index, Real Sector Confidence Index for the period between 2007:01 and 2016:06. The results indicate if consumer indices point out negative signals, capital market still gains in normal periods of economy. If they only in a recession or an expansion regime do, each of the indices moves in the same direction.

Suggested Citation

  • Koy AYBEN & Akkaya MURAT, 2017. "The Role of Consumer Confidence as a Leading Indicator on Stock Returns: A Markov Switching Approach," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 1, pages 36-47.
    • Handle: RePEc:ddj:fseeai:y:2017:i:1:p:36-47
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    Cited by:

    1. Maximo Camacho & Fernando Soto, 2018. "Consumer confidence’s boom and bust in Latin America," Working Papers 18/02, BBVA Bank, Economic Research Department.

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