Abstract

http://ssrn.com/abstract=2320065
 


 



Do Personal Consumption Expenditures Reflect Investor Stock Sentiment?


Major Coleman IV


Syracuse University - Whitman School of Management

September 9, 2013


Abstract:     
If investors choose consumption and investment jointly to maximize expected utility, then any investor sentiment about stock returns should be reflected in consumption choices. I find that non-durable consumption moves in the same direction as investor sentiment contemporaneously. But 2-4 years later, as sentiment corrects, consumption moves opposite to prior sentiment. The results are consistent with sentiment representing a false perception of a change in permanent future stock wealth, which leads to counterproductive attempts at consumption smoothing in aggregate. Sentiment-influenced consumption choices increase consumption's volatility and co-variance with the stock market, while lowering mean consumption and wealth.

Number of Pages in PDF File: 50

Keywords: investor sentiment, consumption, wealth effect

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Date posted: September 3, 2013 ; Last revised: January 27, 2014

Suggested Citation

Coleman, Major, Do Personal Consumption Expenditures Reflect Investor Stock Sentiment? (September 9, 2013). Available at SSRN: http://ssrn.com/abstract=2320065 or http://dx.doi.org/10.2139/ssrn.2320065

Contact Information

Major Coleman IV (Contact Author)
Syracuse University - Whitman School of Management ( email )
Syracuse, NY 13244
United States
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