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The stock market and consumer confidence: European evidence

  • Jansen, W. Jos
  • Nahuis, Niek J.

This paper studies the (short-run) relationship between stock market developments and consumer confidence in eleven European countries over the years 1986-2001. We find that stock returns and changes in sentiment are positively correlated for nine countries, with Germany as the main exception. Moreover, stock returns generally Granger-cause consumer confidence at very short horizons (two weeks to one month), but not vice versa. The stock market-confidence relationship is driven by expectations about economy-wide conditions rather than personal finances. This suggests that the confidence channel is not part of the conventional wealth effect, but a separate transmission channel.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 79 (2003)
Issue (Month): 1 (April)
Pages: 89-98

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Handle: RePEc:eee:ecolet:v:79:y:2003:i:1:p:89-98
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  1. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  2. James H. Stock & Mark W. Watson, 2001. "Forecasting Output and Inflation: The Role of Asset Prices," NBER Working Papers 8180, National Bureau of Economic Research, Inc.
  3. Romer, Christina D, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 597-624, August.
  4. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
  5. Jason Bram & Sydney Ludvigson, 1997. "Does consumer confidence forecast household expenditure?: A sentiment index horse race," Research Paper 9708, Federal Reserve Bank of New York.
  6. N.J. Nahuis, 2000. "Are Survey Indicators Useful for Monitoring Consumption Growth: Evidence from European Countries," MEB Series (discontinued) 2000-8, Netherlands Central Bank, Monetary and Economic Policy Department.
  7. Laurence Boone & Claude Giorno & Pete Richardson, 1998. "Stock Market Fluctuations and Consumption Behaviour: Some Recent Evidence," OECD Economics Department Working Papers 208, OECD Publishing.
  8. Mauro, Paolo, 2003. "Stock returns and output growth in emerging and advanced economies," Journal of Development Economics, Elsevier, vol. 71(1), pages 129-153, June.
  9. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
  10. Maria W. Otoo, 1999. "Consumer sentiment and the stock market," Finance and Economics Discussion Series 1999-60, Board of Governors of the Federal Reserve System (U.S.).
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