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Wealth effect and investor sentiment

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  • Tsai, I-Chun

Abstract

This paper investigated the relationship between the U.S. stock and housing markets as well as their influence on the wealth effect of consumption and found that the stock market sentiment index can explain changes in the wealth effect. The empirical results indicate that these two markets exert a wealth effect on consumption. The estimation results of the Markov-switching model indicate two states: a state in which the stock market influences its coexistence with the housing market and a state in which the housing and stock markets are unrelated. Public optimism regarding stock market investments affects the probability of transitioning between these states.

Suggested Citation

  • Tsai, I-Chun, 2016. "Wealth effect and investor sentiment," The North American Journal of Economics and Finance, Elsevier, vol. 38(C), pages 111-123.
    • Handle: RePEc:eee:ecofin:v:38:y:2016:i:c:p:111-123
    DOI: 10.1016/j.najef.2016.09.001
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    Cited by:

    1. Lin Liu & Kai Shi, 2017. "A Comparative Analysis on the Wealth Effect between in the Stock Market and in the Housing Market in China," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(11), pages 118-127, November.
    2. Cong Chen & Changsheng Hu & Hongxing Yao, 2022. "Noise Trader Risk and Wealth Effect: A Theoretical Framework," Mathematics, MDPI, vol. 10(20), pages 1-18, October.
    3. Lin, Wen-Yuan & Tsai, I-Chun, 2019. "Trader differences in Shanghai’s A-share and B-share markets: Effects on interaction with the Shanghai housing market," Journal of Asian Economics, Elsevier, vol. 64(C), pages 1-1.
    4. Liow, Kim Hiang & Huang, Yuting & Song, Jeonseop, 2019. "Relationship between the United States housing and stock markets: Some evidence from wavelet analysis," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Wealth effect; Investor sentiment; Optimistic sentiment; Capital switching; Markov-switching model;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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