Consumer Confidence Indices and Stock Markets’ Meltdowns
47 Pages Posted: 27 Feb 2012 Last revised: 5 Sep 2014
Date Written: June 1, 2014
Consumer confidence indices (CCIs) are a closely monitored barometer of countries’ economic health, and an informative forecasting tool. Using European and US data, we provide a case study of the two recent stock market meltdowns (the post-dotcom bubble correction of 2000-2002 and the 2007-2009 decline at the beginning of the financial crisis) to contribute to the discussion on their appropriateness as proxies for stock markets’ investor sentiment. Investor sentiment should positively covary with stock market movements (DeLong et al., 1990), however, we find that the CCI-stock market relationship is not universally positive. We also do not find support for the information effect documented in previous literature, but identify a more subtle relationship between consumer expectations about future household finances and stock market fluctuations.
Keywords: consumer confidence, dotcom bubble, financial crisis, stock market reaction, financial literacy
JEL Classification: G00, G15
Suggested Citation: Suggested Citation