Wealth‐To‐Income Ratio and Stock Market Movements: Evidence from a Nonparametric Causality Test

12 Pages Posted: 17 Sep 2018

See all articles by Mehmet Balcilar

Mehmet Balcilar

Eastern Mediterranean University

Rangan Gupta

University of Pretoria - Department of Economics

Ricardo M. Sousa

University of Minho; Economic Policies Research Unit (NIPE); London School of Economics & Political Science (LSE) - Financial Markets Group; London School of Economics

Mark E. Wohar

University of Nebraska at Omaha

Date Written: September 1, 2018

Abstract

We use a nonparametric causality‐in‐quantile test to analyze the predictive ability of the wealth‐to‐income ratio (wy) for excess stock returns and their volatility. Our results reveal that the wy is nonlinearly related with excess stock returns, and hence, results from linear Granger causality tests cannot be deemed robust. When we apply the nonparametric causality‐in‐quantile test, we find that the wy can predict excess stock returns over the majority of the conditional distribution, with the exception being the extreme ends, that is, when the market is in deep bear or bull phases. However, the wy has no predictability for the volatility of excess stock returns.

Suggested Citation

Balcilar, Mehmet and Gupta, Rangan and Sousa, Ricardo Magalhaes and Wohar, Mark E., Wealth‐To‐Income Ratio and Stock Market Movements: Evidence from a Nonparametric Causality Test (September 1, 2018). International Review of Finance, Vol. 18, Issue 3, pp. 495-506, 2018, Available at SSRN: https://ssrn.com/abstract=3244740 or http://dx.doi.org/10.1111/irfi.12136

Mehmet Balcilar (Contact Author)

Eastern Mediterranean University ( email )

Gazimagusa
Turkey

HOME PAGE: http://www.mbalcilar.net

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Ricardo Magalhaes Sousa

University of Minho ( email )

Campus Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://econ.lse.ac.uk

Mark E. Wohar

University of Nebraska at Omaha ( email )

Department of Economics
6708 Pine Street MH 332S
Omaha, NE 68182
United States
402-554-3712 (Phone)
402-554-2853 (Fax)

HOME PAGE: http://cba.unomaha.edu/faculty/mwohar/WEB/homepage.html

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