The Consumption-Wealth Ratio, Real Estate Wealth, and the Japanese Stock Market

Kohei Aono, 幸平 青野, コウヘイ アオノ, Tokuo Iwaisako, 得夫 祝迫 and トクオ イワイサコ

No a504, Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: The first contribution of this paper, following the works of Lettau and Ludvigson (2001a,b), is construction of the Japanese consumption-wealth ratio data series and to examine whether it explains Japanese stock market data. We find that the consumption-wealth ratio does not predict future stock returns, but it does help to explain the cross-section of Japanese stock returns. The second contribution of the paper is that we propose new consumption-wealth ratios in terms of which we more explicitly deal with household real estate wealth utilizing Japanese aggregate level data. Such "real estate augmented" consumption-wealth ratios work in a similar way, but perform better than, the consumption-wealth ratio calculated with only financial wealth data. While the scaled factor model with the consumption-wealth ratio proposed by Lettau and Ludvigson performs relatively well with Japanese data, the book-to-market related anomaly pointed out by Jagannathan et al. (1998) remains strong.

Keywords: consumption-wealth ratio; cointegration; cross-section of stock returns (search for similar items in EconPapers)
JEL-codes: E21 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-07
New Economics Papers: this item is included in nep-bec, nep-fmk, nep-mac and nep-ure
Note: 39642, The previous version of this paper was circulated under the title of "The Consumption-Wealth Ratio and the Japanese Stock Market". We made substantial changes to the calculation of the variables used in the empirical analyses in this current version.
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Citations: View citations in EconPapers (5)

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