Changes in the risk structure of stock returns. Consumer Confidence and the Dotcom Bubble

Lawrence Leger and Vitor Leone

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: Changes in the risk structure of stock returns may sometimes be very revealing. We examine economic variables that help explain principal components in UK stock returns, 01/1985 to 12/2001. The loading pattern on explanatory variables for the first component in a ‘bubble’ period is distinctive and consistent with a bubble/crash market. The second component shows a loading pattern on a Consumer Confidence variable in a pre-bubble period only. We observe apparently systematic changes in the structure of risk, and conjecture that Consumer Confidence captures a change in market sentiment that could be a signal for the evolution of stock prices.

Keywords: Macroeconomic variables; consumer confidence; stock returns; principal components analysis (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2007-06, Revised 2007-06
New Economics Papers: this item is included in nep-rmg
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Related works:
Journal Article: Changes in the risk structure of stock returns: Consumer Confidence and the dotcom bubble (2008)
Journal Article: Changes in the risk structure of stock returns: Consumer Confidence and the dotcom bubble (2008)
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