The Stock Market and the Consumer Confidence Channel in Canada

Lilia Karnizova and Hashmat Khan ()

No 1004E, Working Papers from University of Ottawa, Department of Economics

Abstract: When stock prices rise, so does aggregate consumer spending. A traditional explanation for this phenomenon is based on wealth effects. However, movements of the stock market may affect consumer spending indirectly, by influencing consumer confidence. A bullish stock market may make consumers feel more optimistic about the future of the aggregate economy, and hence increase their spending. This paper investigates the existence of the consumer confidence channel of asset price transmission in Canada. The analysis is based on the indices of consumer confidence from the Conference Board of Canada and the Toronto Stock Exchange index. The results are supportive of the consumer confidence channel at the national level. There is also evidence of asymmetric effects of stock price changes on confidence changes: declines of the stock index have larger and statistically more significant effects relative to its increases.

Keywords: Stock market; Consumer confidence; Wealth; Asymmetry. (search for similar items in EconPapers)
JEL-codes: E21 E44 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Working Paper: The Stock Market and the Consumer Confidence Channel in Canada (2011)
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