Abstract

http://ssrn.com/abstract=2113835
 
 

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Stock Market Risk Premiums, Business Confidence and Consumer Confidence: Dynamic Effects and Variance Decomposition


Vichet Sum


University of Maryland Eastern Shore - School of Business and Technology

Jack Chorlian


University of La Verne

July 19, 2012

International Journal of Economics and Finance, 5(9), 45-49. August, 2013

Abstract:     
This study is to assess the dynamics effects of business confidence and consumer confidence on stock market risk premiums and to determine the relative importance of business confidence and consumer confidence in forecasting the variability of stock market risk premiums though a variance decomposition. The results show that the response of stock market risk premiums becomes positive immediately following the shocks to business confidence and consumer confidence. Based on the variance decomposition analysis, the variability of stock market risk premiums is 95% due to its own shock and the rest is due to the shocks to business confidence (1%) and consumer confidence (4%) for the 3-month horizon. For the 6-month horizon, the variability of stock market risk premiums is 93% due to its own shock, 2% due to business confidence shock and 5% due to consumer confidence shock. The forecast error of stock market risk premiums is 90% due to its own shock and the rest is due to the shocks to business confidence (4%) and consumer confidence (6%) for the 12-month horizon. The results from the OLS time-series regression show that business confidence and consumer confidence jointly explain around 7.42% of the variation of stock market risk premiums.

Number of Pages in PDF File: 10

Keywords: business confidence, consumer confidence, stock market risk premiums

JEL Classification: G10, G12, G14

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Date posted: July 19, 2012 ; Last revised: January 25, 2014

Suggested Citation

Sum, Vichet and Chorlian, Jack, Stock Market Risk Premiums, Business Confidence and Consumer Confidence: Dynamic Effects and Variance Decomposition (July 19, 2012). International Journal of Economics and Finance, 5(9), 45-49. August, 2013. Available at SSRN: http://ssrn.com/abstract=2113835 or http://dx.doi.org/10.2139/ssrn.2113835

Contact Information

Vichet Sum (Contact Author)
University of Maryland Eastern Shore - School of Business and Technology ( email )
2105 Kiah Hall
Princess Anne, MD 21853
United States
410-651-6531 (Phone)
410-651-6529 (Fax)
HOME PAGE: http://www.umes.edu/bma/Sum.html
Jack Chorlian
University of La Verne ( email )
1950 Third Street
La Verne, CA 91750
United States
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