Consumer Confidence and Stock Markets' Returns

Raquel Gaspar and Xu Jiaming

No 2023/0292, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: This study provides new insights on the relationship between changes in consumer confidence indices worldwide and the performance of European, United States and Chinese stock markets, during the period from 2007 to 2021. We look both into global and industry returns. For the full-time period, we find stock market returns tend to be positively correlated with changes in consumer confidence indices, with significant two-way Granger causal impacts between the two variables for Europe and the United States. For the Chinese stock market we find less pronounced and only one-way impact { changes in consumer con dence indices can Granger explain Chinese stock returns, but not vice versa. In fact, Chinese stock returns only help explaining changes in East Asian consumer confidence index. These results are robust across industries. For the Covid pandemic sub-period, we find some negative correlations between stock market returns and changes in consumer confidence indices. This is particularly evident in China, but it also happens in Europe and United States, at least for some industries, including Health Care. Overall, the connection between the stock market performance and changes in consumer confidence is lower for USA and European stock markets, but it is higher for the Chinese stock market, in terms of the number of significant outcomes.

Keywords: Consumer confidence index; Stock returns; Granger causality. (search for similar items in EconPapers)
JEL-codes: G00 G11 G15 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-cna and nep-fmk
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