Purchase - $38.00

Consumption, Wealth, Stock and Government Bond Returns: International Evidence

29 Pages Posted: 20 Oct 2011  

Antonio Afonso

University of Lisbon - School of Economics and Management; UECE (Research Unit on Complexity and Economics); University of Lisbon - ISEG School of Economics and Management; University of Lisbon - ISEG (School of Economics and Management)

Date Written: December 2011

Abstract

In this paper, we show, from 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 government bond yields. We use data for several OECD countries and find that when agents expect future stock returns to be higher, they will temporarily allow consumption to rise. Regarding government bond yields, when bonds are seen as a component of asset wealth, then investors react in the same way. If, however, the increase in the yields is perceived as signalling a future rise in taxes, then they will temporarily reduce their consumption.

Suggested Citation

Afonso, Antonio, Consumption, Wealth, Stock and Government Bond Returns: International Evidence (December 2011). The Manchester School, Vol. 79, Issue 6, pp. 1294-1232, 2011. Available at SSRN: https://ssrn.com/abstract=1946686 or http://dx.doi.org/10.1111/j.1467-9957.2011.02247.x

Antonio Afonso (Contact Author)

University of Lisbon - ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://www.iseg.utl.pt/~aafonso/AAWeb.html

University of Lisbon - School of Economics and Management ( email )

Rua do Quelhas, n.ยบ 6
Lisbon, 1200-781
Portugal

UECE (Research Unit on Complexity and Economics)

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://www.iseg.utl.pt/~uece/

University of Lisbon - ISEG School of Economics and Management ( email )

Rua do Quelhas 6
Lisboa, 1200-781
Portugal

Paper statistics

Downloads
2
Abstract Views
164