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Are Stock and Housing Returns Complements or Substitutes?: Evidence from OECD Countries

  • Guglielmo Maria Caporale
  • Ricardo M. Souza

In this paper we use a representative consumer model to analyse the equilibrium relation between the transitory deviations from the common trend among consumption, aggregate wealth, and labour income, cay, and focus on the implications for both stock returns and housing returns. The evidence based on data for 15 OECD countries shows that when agents expect future stock returns to be higher, they will temporarily allow consumption to rise. Regarding housing returns, if housing assets are seen as complements to stocks, then investors react in the same way, but if they are instead treated as substitutes consumption will be temporarily reduced.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.386773.de/dp1158.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1158.

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Length: 15 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1158
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  14. repec:fth:harver:1435 is not listed on IDEAS
  15. Hanno N. Lustig & Stijn G. Van Nieuwerburgh, 2005. "Housing Collateral, Consumption Insurance, and Risk Premia: An Empirical Perspective," Journal of Finance, American Finance Association, vol. 60(3), pages 1167-1219, 06.
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  21. Whelan, Karl, 2006. "Consumption and Expected Asset Returns without Assumptions About Unobservables," MPRA Paper 5891, University Library of Munich, Germany.
  22. Guglielmo Maria Caporale & Ricardo M. Sousa, 2011. "Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets," NIPE Working Papers 32/2011, NIPE - Universidade do Minho.
  23. Emmanuel De Veirman & Ashley Dunstan, 2008. "How do Housing Wealth, Financial Wealth and Consumption Interact? Evidence from New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/05, Reserve Bank of New Zealand.
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