Market Wealth Effect Research Articles

Stock market wealth-effects during privatization initial public offers in chile (1984-1989)

The aftermarket performance of eleven privatization Initial Public Offers (IPOs) in Chile during 1984-1989 is studied in this document, and a detailed description of the economic and political conditions that prevailed is provided. In particular, we discuss the operational details of the stock issuing mechanism, complemented with a statistical study on the IPOs’ Market Adjusted Returns. While the sample size is limited and does not support a significant external validity, the analysis confirms the presence of aftermarket performance patterns that are very similar to those observed in private and privatization IPOs reported elsewhere (Aggarwal, Leal and Hernández, 1993; Dewenter and Malatesta, 1997; Loughran, Ritter and Rydqvist, 1994; Perotti and Guney, 1993).

Stock market wealth effects in an estimated DSGE model for Hong Kong

This paper develops and estimates an open-economy dynamic stochastic general equilibrium (DSGE) model of the Hong Kong economy. The model features short-run price rigidities generated by monopolistic competition and staggered reoptimization. We devote special attention to asset prices and wealth effects, which we believe to be important. For this reason we adopt a perpetual-youth approach. Model parameters and unobserved components are estimated with a Bayesian maximum likelihood procedure, conditional on prior information concerning the values of parameters. The estimations identify substantial wealth effects and indicate that the nominal interest rate responds to unexpected movements in stock prices.

Stock Market Wealth Effects in an Estimated DSGE Model for Hong Kong

This paper develops and estimates an open economy dynamic stochastic general equilibrium (DSGE) model of the Hong Kong economy. The model features short-run price rigidities generated by monopolistic competition and staggered reoptimisation. The model is enhanced with wealth effects due to stock price dynamics, which we believe to be important. For this reason we adopt a perpetual youth approach. Model parameters and unobserved components are estimated with a Bayesian maximum likelihood procedure, conditional on prior information concerning the values of parameters.

Wealth Effects in Emerging Market Economies

We build a panel of 14 emerging economies to estimate the magnitude of housing, stock market, and money wealth effects on consumption. Using modern panel data econometric techniques and quarterly data for the period 1990:1-2008:2, we show that: (i) wealth effects are statistically significant and relatively large in magnitude; (ii) housing wealth effects tend to be smaller for Asian emerging markets while stock market wealth effects are, in general, smaller for Latin American countries; (iii) housing wealth effects have increased for Asian coutries in recent years; and (iv) consumption reacts stronger to negative than to positive shocks in housing and financial wealth. JEL Classification: E21, E44, D12

Financial market and housing wealth effects on consumption: a permanent income approach

The objective of this study is to examine the financial market and housing wealth effects on consumption. Housing has the dual functions as both a commodity yielding a flow of housing services and an investment asset yielding a flow of capital income. With the construction of an empirical framework based on the vector autoregression approach, the findings from this study suggest that a rise in housing price has both a positive wealth effect and a negative price effect on consumption. While the positive wealth effect is caused by an increase in capital income, the negative price effect is caused by an increase in the cost of housing services. In addition, the housing market wealth effect increases, at the expense of the price effect, with the level of housing-market leverage. These findings imply that the government policy of land supply aiming to stimulate the economy should strike a balance between the possible wealth and price effects of the housing market.

Housing and Equity Wealth Effects of Italian Households

The study quantifies stock market and housing market wealth effects on households' non-durable consumption using Italian household panel data (SHIW) of 1989-2002. We found all households react similarly to aggregate housing and stock market gains. We also found statistically and economically significant housing wealth effects with a marginal propensity to consume out of idiosyncratic housing wealth gains to be over 8 percent. The results from idiosyncratic equity wealth effects were lower, at around 0.4 percent. We also found that older households react more to changes in housing wealth.

“What if the Fed increased the weight of the stock price gap in its reaction function?”

The Fed has never admitted targeting stock prices. Yet, our empirical analysis, based on a small macroeconometric model of the U.S. economy in the period 1981–2002, shows that the Fed explicitly takes into account stock price variations in its reaction function. Furthermore, our simulation results suggest that increasing the weight attributed to stock price changes could prove advisable, as the stock market wealth effect increases. This measure would help to contain the additional instability brought about by this economic evolution, and confirm the current political trend towards protecting stock owners.

Evidence of a stock market wealth effect using household level data

Using the household level data of urban households in Korea, this paper presents evidence for a statistically significant stock market wealth effect for the highest income bracket households who typically hold a large share of corporate stock.

Financial Market and Housing Wealth Effects on Consumption

The objective of this study is to examine the financial market and housing wealth effects on consumption. Housing has the dual functions as both a commodity yielding a flow of housing services and an investment asset yielding a flow of capital income. The findings from this study suggest that a rise in housing price has both a positive wealth effect and a negative price effect on consumption. While the positive wealth effect is caused by an increase in capital income, the negative price effect is caused by an increase in the cost of housing services. In addition, the housing market wealth effect increases, at the expense of the price effect, with the levels of leverage and homeownership of the housing market. These findings imply that the government policy of land supply aiming to stimulate the economy should strike a balance between the possible wealth and price effects of the housing market.

Is there a stock market wealth effect in emerging markets?

Using a panel of 16 emerging markets, this paper presents some evidence for a small but statistically significant stock market wealth effect. Over a 3-year period a 10% decline (increase) in stock prices is associated, on average, with a 0.2–0.4% decrease (increase) in private consumption.

Earnings Opacity, Stock Market Wealth Effect and Economic Growth

This paper examines how accounting quality, as measured by earnings opacity, affects the stock market wealth effect, which in turn is shown to be linked to economic growth. Stock market wealth effect is negatively affected by earnings opacity. The data also indicate that the exogenous component of the stock market wealth effect — the component defined by earnings opacity‐ is positively associated with economic growth. The direct effect of earnings opacity on economic growth is, as expected negative, but insignificant.

Earnings Opacity, Stock Market Wealth Effect and Economic Growth

This paper examines how accounting quality, as measured by earnings opacity, affects stock market wealth effect, which in turn is shown to be linked to economic growth. Stock market wealth effect is negatively affected by earnings opacity. The data also indicate that the exogenous component of the stock market wealth effect - the component defined by earnings opacity - is positively associated with economic growth. The direct effect of earnings opacity on economic growth is, as expected negative, but insignificant.

A new paradigm: the wealth effect of the stock market on consumption, in a context of interacting bio-systems

This study examines the existence of a stock market wealth effect on aggregate private consumption in the economy. A theory of investor/consumer behavior is suggested, in a context of a symbiotic relationship between two quasi-bio-systems. The model offers predictions about likely outcomes in capital market interaction with the underlying economy in general and consumption in particular. These predictions are validated empirically. Specifically, the paper finds that investors/consumers do not respond immediately to a stock market rise (fall). Rather, they wait at first and thereafter gradually accelerate their ‘wealth spending’ on consumption only after they are convinced that the gain is permanent (a variation of the ‘income smoothing’ that was suggested many years ago by Friedman (1957)). The paper suggests that the capital markets and the economy interact like two bio-systems symbiotically responding to each other. This study presents evidence that the consumption wealth spending peaks at approximately 2.5% of the stock market wealth CUMULATIVE gain in the previous 12–24-month period, with some effects lingering on up to 36 months. For example, it shows that over 40% of the growth in consumer spending in 1999 was attributable to gains in the stock market in previous years, contributing to a strong GDP in that year.