Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets

19 Pages Posted: 7 Oct 2011

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Ricardo M. Sousa

University of Minho; Economic Policies Research Unit (NIPE); London School of Economics & Political Science (LSE) - Financial Markets Group; London School of Economics

Date Written: September 2011

Abstract

In this paper, we show, using the consumer's budget constraint, that the residuals of the trend relationship among consumption, aggregate wealth, and labour income should predict both stock returns and housing returns. We use quarterly data for a panel of 31 emerging economies and find that, when agents expect future stock returns to be higher, they will temporarily allow consumption to rise. Regarding housing returns, if housing assets are complementary to stocks, then investors react in the same way. If, however, the increase in the exposure through risky assets is achieved by lowering the share of wealth held in the form of housing (i.e., when stock and housing assets are substitutes), then they will temporarily reduce their consumption.

Keywords: consumption, wealth, stock returns, housing returns, emerging markets

JEL Classification: E21, E44, D12

Suggested Citation

Caporale, Guglielmo Maria and Sousa, Ricardo Magalhaes, Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets (September 2011). DIW Berlin Discussion Paper No. 1159, Available at SSRN: https://ssrn.com/abstract=1940417 or http://dx.doi.org/10.2139/ssrn.1940417

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
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CESifo (Center for Economic Studies and Ifo Institute)

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German Institute for Economic Research (DIW Berlin) ( email )

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Ricardo Magalhaes Sousa

University of Minho ( email )

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Portugal
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HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

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London School of Economics ( email )

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HOME PAGE: http://econ.lse.ac.uk

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