Linking wealth and labour income with stock returns and government bond yields
Ricardo Sousa ()
The European Journal of Finance, 2015, vol. 21, issue 10-11, 806-825
In this paper, I assess the predictive ability of the ratio of asset wealth to labour income for both stock returns and government bond yields. Using data for 16 Organization for Economic Co-operation and Development (OECD) countries, I show that when the wealth-to-income ratio falls, investors demand a higher stock risk premium. A similar link can be found for government bond yields when agents behave in a non-Ricardian manner or see government bonds as complements for stocks. In contrast, when investors display a Ricardian behaviour or perceive stocks and government bonds as good substitutes, a fall in the wealth-to-income ratio is associated with a fall in future bond premium.
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Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:806-825
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