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The decay of cay

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  • Dauber, Moritz
  • Lawrenz, Jochen

Abstract

We revisit the ability of the consumption–wealth ratio (cay) to forecast stock market returns and document a substantial decline in predictability over the last two decades. This decay of cay goes along with a structural shift in the underlying cointegration relationship, which can be attributed to the fact that asset wealth evolves increasingly detached from aggregate consumption and labor income. We propose a new version of cay derived only from the top 10% richest households and show that among various other proposed improvements of cay, this appears as the most promising empirical proxy for the still appealing theory.

Suggested Citation

  • Dauber, Moritz & Lawrenz, Jochen, 2026. "The decay of cay," Journal of Empirical Finance, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:empfin:v:85:y:2026:i:c:s0927539825000908
    DOI: 10.1016/j.jempfin.2025.101668
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