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The Stock Market and the Consumer Confidence Channel in Canada

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Abstract

This paper provides new evidence on the relations between the stock market and consumer behavior in Canada. It differentiates between two channels of stock price transmission: a direct wealth channel that operates through changes in wealth and an indirect consumer confidence channel that affects consumption through changes in consumer optimism. The two channels are evaluated by testing the ability of stock prices to predict consumer confidence measures. The hypothesis that stock prices are transmitted only through the wealth channel is rejected at the national and regional levels. Furthermore, confidence measures respond more strongly to stock prices declines than to increases.

Suggested Citation

  • Lilia Karnizova & Hashmat Khan, 2010. "The Stock Market and the Consumer Confidence Channel in Canada," Carleton Economic Papers 10-08, Carleton University, Department of Economics, revised 26 Aug 2011.
    • Handle: RePEc:car:carecp:10-08
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    2. Emrah İ. Çevik & Turhan Korkmaz & Erdal Atukeren, 2012. "Business confidence and stock returns in the USA: a time-varying Markov regime-switching model," Applied Financial Economics, Taylor & Francis Journals, vol. 22(4), pages 299-312, February.
    3. Kamini Solanki & Yudhvir Seetharam, 2014. "Is consumer confidence an indicator of JSE performance?," Contemporary Economics, Vizja University, vol. 8(3), September.

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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