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Consumer Sentiment and the Stock Market

Maria Ward Otoo

Board of Governors of the Federal Reserve - Industrial Output Section

November 1999

FEDS Working Paper No. 99-60

This paper examines the relationship between movements in consumer sentiment and stock prices. At the aggregate level, the two share a strong contemporaneous relationship an increase in equity values boosts sentiment. However, I also sought to examine the nature of the relationship between the two. Does an increase in stock prices raise aggregate sentiment because people are wealthier or because they use movements in stock prices as an indicator of future economic activity and potential labor income growth? Using individual observations from the Michigan survey I found results more consistent with the view that people use movements in equity prices as a leading indicator. Although the findings do not rule out a traditional wealth effect, they do raise some questions about the causal role of wealth in aggregate spending.

Number of Pages in PDF File: 20

Keywords: consumer sentiment, stock market, Michigan survey

JEL Classification: D12

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Date posted: May 21, 2000  

Suggested Citation

Otoo, Maria Ward, Consumer Sentiment and the Stock Market (November 1999). FEDS Working Paper No. 99-60. Available at SSRN: https://ssrn.com/abstract=205028 or http://dx.doi.org/10.2139/ssrn.205028

Contact Information

Maria Ward Otoo (Contact Author)
Board of Governors of the Federal Reserve - Industrial Output Section ( email )
20th and Constitution Ave., NW
Washington, DC 20551
United States
202-452-2236 (Phone)
202-452-5296 (Fax)
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