Changes in the risk structure of stock returns. Consumer Confidence and the Dotcom Bubble
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.
|Date of creation:||Jun 2007|
|Date of revision:||Jun 2007|
|Contact details of provider:|| Postal: |
Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chamberlain, Gary & Rothschild, Michael, 1982.
"Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets,"
3230355, Harvard University Department of Economics.
- Chamberlain, Gary & Rothschild, Michael, 1983. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Econometrica, Econometric Society, vol. 51(5), pages 1281-304, September.
- Gary Chamberlain & Michael Rothschild, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," NBER Working Papers 0996, National Bureau of Economic Research, Inc.
- Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
- Doron Avramov & Tarun Chordia, 2006. "Asset Pricing Models and Financial Market Anomalies," Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 1001-1040.
- Cauchie, Severine & Hoesli, Martin & Isakov, Dusan, 2004.
"The determinants of stock returns in a small open economy,"
International Review of Economics & Finance,
Elsevier, vol. 13(2), pages 167-185.
- Séverine CAUCHIE & Martin HOESLI & Dušan ISAKOV, 2003. "The Determinants of Stock Returns in a Small Open Economy," FAME Research Paper Series rp54, International Center for Financial Asset Management and Engineering.
- Sadorsky, Perry, 2003. "The macroeconomic determinants of technology stock price volatility," Review of Financial Economics, Elsevier, vol. 12(2), pages 191-205.
- Chan, K. C. & Chen, Nai-fu & Hsieh, David A., 1985. "An exploratory investigation of the firm size effect," Journal of Financial Economics, Elsevier, vol. 14(3), pages 451-471, September.
- Chen, Nai-fu, 1983. " Some Empirical Tests of the Theory of Arbitrage Pricing," Journal of Finance, American Finance Association, vol. 38(5), pages 1393-1414, December.
- Dhrymes, Phoebus J. & Friend, Irwin & Gultekin, N. Bulent & Gultekin, Mustafa N., 1985. "An empirical examination of the implications of arbitrage pricing theory," Journal of Banking & Finance, Elsevier, vol. 9(1), pages 73-99, March.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Connor, Gregory & Korajczyk, Robert A, 1993. " A Test for the Number of Factors in an Approximate Factor Model," Journal of Finance, American Finance Association, vol. 48(4), pages 1263-91, September.
- W. Jos Jansen & Niek J. Nahuis, 2002.
"The Stock Market and Consumer Confidence: European Evidence,"
MEB Series (discontinued)
2002-11, Netherlands Central Bank, Monetary and Economic Policy Department.
- Jansen, W. Jos & Nahuis, Niek J., 2003. "The stock market and consumer confidence: European evidence," Economics Letters, Elsevier, vol. 79(1), pages 89-98, April.
- Richard Priestley, .
"Seasonality, stock returns and the macroeconomy,"
CERF Discussion Paper Series
95-06, Economics and Finance Section, School of Social Sciences, Brunel University.
- Cheng, Arnold C S, 1996. "Economic Factors and Stock Markets: Empirical Evidence from the UK and the US," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(4), pages 287-302, October.
- Mei, Jianping, 1993. "Explaining the Cross-Section of Returns via a Multi-Factor APT Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(03), pages 331-345, September.
- Beenstock, Michael & Chan, Kam-Fai, 1988. "Economic Forces in the London Stock Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 50(1), pages 27-39, February.
- Dhrymes, Phoebus J, et al, 1985. " New Tests of the APT and Their Implications," Journal of Finance, American Finance Association, vol. 40(3), pages 659-74, July.
- Fraser, Patricia, 1996. "UK Excess Share Returns: Firm Size and Volatility," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(1), pages 71-84, February.
- Booth, James R. & Booth, Lena Chua, 2003. "Is presidential cycle in security returns merely a reflection of business conditions?," Review of Financial Economics, Elsevier, vol. 12(2), pages 131-159.
- Brennan, Michael J. & Chordia, Tarun & Subrahmanyam, Avanidhar, 1998. "Alternative factor specifications, security characteristics, and the cross-section of expected stock returns," Journal of Financial Economics, Elsevier, vol. 49(3), pages 345-373, September.
- Ravi Jagannathan & Zhenyu Wang, 1996.
"The conditional CAPM and the cross-section of expected returns,"
208, Federal Reserve Bank of Minneapolis.
- Jagannathan, Ravi & Wang, Zhenyu, 1996. " The Conditional CAPM and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 51(1), pages 3-53, March.
- Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
- Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, March.
- Shukla, Ravi & Trzcinka, Charles, 1990. " Sequential Tests of the Arbitrage Pricing Theory: A Comparison of Principal Components and Maximum Likelihood Factors," Journal of Finance, American Finance Association, vol. 45(5), pages 1541-64, December.
- Priestley, Richard, 1996. "The arbitrage pricing theory, macroeconomic and financial factors, and expectations generating processes," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 869-890, June.
- Beenstock, Michael & Chan, Kam-Fai, 1986. "Testing the Arbitrage Pricing Theory in the United Kingdom," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(2), pages 121-41, May.
When requesting a correction, please mention this item's handle: RePEc:lbo:lbowps:2007_15. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Huw Edwards)
If references are entirely missing, you can add them using this form.