The Consumption-Wealth Ratio, Real Estate Wealth, and the Japanese Stock Market
The first contribution of this paper, following the works of Lettau and Ludvigson (2001a,b), is construction of the Japanese consumption-wealth ratio data series and to examine whether it explains Japanese stock market data. We find that the consumption-wealth ratio does not predict future stock returns, but it does help to explain the cross-section of Japanese stock returns. The second contribution of the paper is that we propose new consumption-wealth ratios in terms of which we more explicitly deal with household real estate wealth utilizing Japanese aggregate level data. Such "real estate augmented" consumption-wealth ratios work in a similar way, but perform better than, the consumption-wealth ratio calculated with only financial wealth data. While the scaled factor model with the consumption-wealth ratio proposed by Lettau and Ludvigson performs relatively well with Japanese data, the book-to-market related anomaly pointed out by Jagannathan et al. (1998) remains strong.
|Date of creation:||Jul 2008|
|Date of revision:|
|Note:||July 13, 2008, The previous version of this paper was circulated under the title of "The Consumption-Wealth Ratio and the Japanese Stock Market". We made substantial changes to the calculation of the variables used in the empirical analyses in this current version.|
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