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Changes in the risk structure of stock returns: Consumer Confidence and the dotcom bubble

  • Leger, Lawrence
  • Leone, Vitor

Changes in the risk structure of stock returns may sometimes be very revealing. We examine economic variables that help explain principal components in UK stock returns, 01/1985 to 12/2001. The loading pattern on explanatory variables for the first component in a 'bubble' period is distinctive and consistent with a bubble/crash market. The second component shows a loading pattern on a Consumer Confidence variable in a pre-bubble period only. We observe apparently systematic changes in the structure of risk, and conjecture that Consumer Confidence captures a change in market sentiment that could be a signal for the evolution of stock prices.

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File URL: http://www.sciencedirect.com/science/article/B6W61-4PRYG89-1/1/ef5c0cf0415b7334264ad7f47f1f1ae6
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Article provided by Elsevier in its journal Review of Financial Economics.

Volume (Year): 17 (2008)
Issue (Month): 3 (August)
Pages: 228-244

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Handle: RePEc:eee:revfin:v:17:y:2008:i:3:p:228-244
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620170

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