Consumer Confidence and Asset Prices: Some Empirical Evidence

42 Pages Posted: 29 Oct 2002

See all articles by Michael L. Lemmon

Michael L. Lemmon

University of Utah - Department of Finance

Evgenia V. Golubeva

University of Oklahoma - Division of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: September 30, 2002

Abstract

We explore the conditional version of the CAPM and the CCAPM using the methodology of Lettau and Ludvigson (2001). As a conditioning variable, we use the Index of Consumer Sentiment from the University of Michigan. The ability of the confidence index to explain the cross-section of the 25 Fama-French portfolios is comparable to that of the consumption-to-wealth ratio advocated by Lettau and Ludvigson, or the default spread employed by Jagannathan and Wang (1996). As suggested by further analysis, the improved cross-sectional performance is related to the fact that the conditional market betas of small stocks are significantly more sensitive to the business cycle than those of large stocks.

Keywords: consumer confidence, conditional asset pricing, business cycle, time-varying risk premium

JEL Classification: G12, E32, E44

Suggested Citation

Lemmon, Michael L. and Golubeva, Evgenia V., Consumer Confidence and Asset Prices: Some Empirical Evidence (September 30, 2002). Available at SSRN: https://ssrn.com/abstract=335240 or http://dx.doi.org/10.2139/ssrn.335240

Michael L. Lemmon

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)

Evgenia V. Golubeva (Contact Author)

University of Oklahoma - Division of Finance ( email )

307 West Brooks
Room 205A, Adams Hall
Norman, OK 73019
United States
405-325-7727 (Phone)
405-325-7688 (Fax)

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