EconPapers    
Economics at your fingertips  
 

Predicting stock returns and volatility using consumption-aggregate wealth ratios: A nonlinear approach

Stelios Bekiros and Rangan Gupta ()

Economics Letters, 2015, vol. 131, issue C, 83-85

Abstract: Recent empirical evidence based on a linear framework tends to suggest that a Markov-switching version of the consumption-aggregate wealth ratio (cayMS), developed to account for structural breaks, is a better predictor of stock returns than the conventional measure (cay)—a finding we confirm as well. Using quarterly data over 1952:Q1–2013:Q3, we however provide statistical evidence that the relationship between stock returns and cay or cayMS is in fact nonlinear. Then, given this evidence of nonlinearity, using a nonparametric Granger causality test, we show that it is in fact cay and not cayMS which is a stronger predictor of not only stock returns, but also volatility.

Keywords: Cay; Stock markets; Volatility; Nonlinear causality (search for similar items in EconPapers)
JEL-codes: C32 C58 G10 G17 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176515001202
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Predicting Stock Returns and Volatility Using Consumption-Aggregate Wealth Ratios: A Nonlinear Approach (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:131:y:2015:i:c:p:83-85

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-04-19
Handle: RePEc:eee:ecolet:v:131:y:2015:i:c:p:83-85