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

17 Pages Posted: 27 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: October 27, 2011

Abstract

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.

Keywords: consumption, wealth, stock returns, housing returns, OECD countries

JEL Classification: E210, E440, D120

Suggested Citation

Caporale, Guglielmo Maria and Sousa, Ricardo Magalhaes, Are Stock and Housing Returns Complements or Substitutes? Evidence from OECD Countries (October 27, 2011). CESifo Working Paper Series No. 3621, Available at SSRN: https://ssrn.com/abstract=1950113 or http://dx.doi.org/10.2139/ssrn.1950113

Guglielmo Maria Caporale (Contact Author)

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

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London South Bank University ( email )

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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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Economic Policies Research Unit (NIPE) ( email )

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

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London School of Economics ( email )

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