Predicting stock market movements with a time-varying consumption-aggregate wealth ratio
Tsangyao Chang (),
Rangan Gupta (),
Anandamayee Majumdar and
International Review of Economics & Finance, 2019, vol. 59, issue C, 458-467
We develop a time-varying measure of cay (cayTVP) using time-varying cointegration, and then compare the predictive ability of cayTVP with cay and a Markov-switching cay (cayMS) for excess stock returns and volatility in the US over the period 1952:Q2-2015:Q3, using a k-th order nonparametric causality-in-quantiles test. We find that time-varying cointegration exists between consumption, asset wealth, and labor income. In addition, while there is no evidence of predictability of volatility of excess returns from cay, cayMS, or cayTVP, they tend to act as strong predictors of stock returns, with cayTVP being important during the bearish phases of the equity market.
Keywords: Consumption-aggregate wealth ratio; Time-varying cointegration; Stock returns; Volatility; Nonparametric causality-in-quantiles test (search for similar items in EconPapers)
JEL-codes: C22 G10 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Predicting Stock Market Movements with a Time-Varying Consumption-Aggregate Wealth Ratio (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:59:y:2019:i:c:p:458-467
Access Statistics for this article
International Review of Economics & Finance is currently edited by H. Beladi and C. Chen
More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().