Stock Market Wealth Effect Research Articles

What goes around comes around: How large are spillbacks from US monetary policy?

Spillovers from US monetary policy entail spillbacks to the domestic economy. Applying counterfactual analyses in a Bayesian proxy structural vector-autoregressive model we find that spillbacks account for a non-trivial share of the slowdown in domestic real activity following a contractionary US monetary policy shock. Spillbacks materialise as a monetary policy tightening depresses foreign sales and valuations of US firms so that Tobin’s q/cash flow and stock market wealth effects impinge on investment and consumption. Net trade does not contribute to spillbacks because US monetary policy affects exports and imports similarly. Geographically, spillbacks materialise through advanced rather than emerging market economies.

Housing and stock market wealth effects in developing economies

Housing and stock market wealth effects in developing economies

Analysis on the Impact of Wealth Effect of Stock Market on China's GDP Growth

Analysis on the Impact of Wealth Effect of Stock Market on China's GDP Growth

House Price Shock and Business Cycle: The French Case

This study examined the relationship between house prices and the business cycle. Specifically, we examined the effect of house price and stock price in the French business cycle. After presenting the transmission channels from house price to the business cycle, we analyzed the cyclical properties of house prices and compared them with the Gross Domestic Product (GDP) cycle. The question arises: are fluctuations in economic activity more sensitive to a real estate price shock (property wealth effect) or a stock price shock (stock market wealth effect)? We collected the data over the 1980Q1-2015Q4 period and investigated the effects of house price and stock price shocks on French GDP by employing the Structural VAR model. We found the evidence that house price strongly affects the GDP cycle. Indeed, their response is significantly more important than the stock price, suggesting that the housing market might contribute to the persistent propagation of the shocks hitting the economic system. The study has important implications for both academia and policymakers and offers new insights into the French experience.JEL Codes - A10; B4

What Goes Around Comes Around: How Large Are Spillbacks From US Monetary Policy?

We quantify spillbacks from US monetary policy based on structural scenario analysis and minimum relative entropy methods applied in a Bayesian proxy structural vector-autoregressive model for the time period from 1990 to 2019. We find that spillbacks account for up to half of the overall slowdown in domestic real activity in response to a contractionary US monetary policy shock. Moreover, spillbacks materialise as stock market wealth effects impinge on US consumption, and as Tobin's q effects impinge on US investment. In particular, a contractionary US monetary policy shock depresses global equity prices, weighing on the value of US households' portfolios; and it depresses earnings of US firms through declines in foreign sales inducing them to cut back investment. Net trade does not contribute to spillbacks because US monetary policy shocks affect exports and imports similarly. Finally, spillbacks materialise through advanced rather than through emerging market economies, consistent with their relative importance in US foreign equity holdings and US firms' foreign demand.

What Goes Around Comes Around: How Large are Spillbacks from US Monetary Policy?

We quantify spillbacks from US monetary policy based on structural scenario analysis and minimum relative entropy methods applied in a Bayesian proxy structural vector-autoregressive model estimated on data for the time period from 1990 to 2019. We find that spillbacks account for a non-trivial share of the overall slowdown in domestic real activity in response to a contractionary US monetary policy shock. Our analysis suggests that spillbacks materialise as Tobin’s q/cash flow and stock market wealth effects impinge on US investment and consumption. Contractionary US monetary policy depresses foreign sales of US firms, which reduces their valuations/cash flows and thereby induces cutbacks in investment. Similarly, as contractionary US monetary policy depresses US and foreign equity prices, the value of US households’ portfolios is reduced, which triggers a drop in consumption. Net trade does not contribute to spillbacks because US monetary policy affects exports and imports similarly. Finally, spillbacks materialise through advanced rather than emerging market economies, consistent with their relative importance in US firms’ foreign demand and US foreign equity holdings.

Wealth Effects of Housing and Stock Markets On Outbound Tourism

The effects of stock market wealth and housing wealth on the demand for outbound tourism by the residents of Singapore, while controlling for other important determinants for outbound tourism, are investigated. From the empirical results, the author concludes that there is weak evidence to support the presence of stock market wealth effect and strong evidence to support the presence of housing wealth effect on outbound tourism. Weak evidence of stock market wealth effect is observed because the model derived from Akaike information criterion does not find significant effect of stock market wealth, but the model derived from Schwartz criterion shows that positive stock market wealth effect is present. Strong evidence of housing wealth effect is observed because the models estimated with both criteria show that housing wealth has negative effect on such consumption. The importance of the government intervention in the public housing of Singapore that leads to such negative housing wealth effect is explained in the conclusion.

How Consumer Confidence Affects the Impact of Housing and Stock Market Wealth on Consumption? Evidence from Asian Countries

This study explores the effect of consumer confidence in the impact of housing market and stock market wealth on private consumption for a panel of 10 Asian countries. This study using quarterly data from the 1 st quarter of 2010 to the 4th quarter of 2017 and applies panel Fully Modified Ordinary Least Square (FMOLS) method to assess the long-term relationship between variables. The result shows that the inclusion of consumer confidence changes the previous impact of housing market wealth and stock market wealth on consumption. Particularly, the interaction between consumer confidence and housing market wealth has a positive and significant impact on consumption, which is different from the previous insignificant impact of housing market wealth on consumption. On the other hand, the interaction between consumer confidence and stock market wealth has a negative significant impact on consumption, which is different from the previous positive significant impact of stock market wealth on consumption. In addition, the supplementary findings of this study show (1) countries with higher financial sector development have stronger housing market and stock market wealth effect than countries with lower financial sector development and (2) countries with higher income level have stronger housing market and stock market wealth effect than countries with lower income level.

Stock Market Price and the Performance of the Residential Property Market in Kenya

The purpose of the study was to assess the effect of stock market price on the performance of the residential property market in Kenya. The surge of the residential property prices in Kenya has ignited concerns about the affordability of residential property houses in Kenya. The escalation of residential property prices raises question as to whether it is in tandem with other markets in the Country especially the stock market. Researchers have inconclusive findings on the direction of causation or the strength of the relationship between stock market and performance of residential property market in Kenya. This study adopted a positivist philosophical attitude using causal research design. The study used quarterly secondary data from 2005 to 2018. The study employed vector error correction residual serial correlation langrange multiplier test and vector error residual heteroskedasticity test as the diagnostic tests. Vector error correction model and auto-regressive distributed lag model were employed to test the hypothesis in the short run and long run respectively. The study found that stock market price had a negative effect on performance of residential property market in Kenya in the short term suggesting substitution effect while in the long run stock market price had a positive effect on the performance of residential property market in line with the wealth effect. The study concludes that stock market information spills over and affects residential property market performance in Kenya both in the long run and short run. The study has also contributed to the confounding empirical and theoretical literature and narrowed the research gap especially on the conflicting substitution effect and wealth effect of stock market and residential property market performance in Kenya. Keywords: Stock Market Price, Performance, Residential Property Market DOI : 10.7176/RJFA/10-18-15 Publication date :September 30 th 2019

Stock Market Wealth and the Real Economy: A Local Labor Market Approach

We provide evidence of the stock market wealth effect on consumption by using a local labor market analysis and regional heterogeneity in stock market wealth. An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and in total, while having no effect on employment in tradable industries. In a model with consumption wealth effects and geographic heterogeneity, these responses imply a marginal propensity to consume out of a dollar of stock wealth of 3.2 cents per year. We also use the model to quantify the aggregate effects of a stock market wealth shock when monetary policy is passive. A 20% increase in stock valuations, unless countered by monetary policy, increases the aggregate labor bill by at least 1.7% and aggregate hours by at least 0.75% two years after the shock.

Wealth Effects and Macroeconomic Dynamics Evidence from Indian Economy

The wealth effects on consumption are a subject of continuing interest to economists. The conventional wisdom states that fluctuations in household wealth have caused major fluctuations in economic activity. This study analyses the macroeconomic dynamics of wealth effects in India and examines the nexus between the changes in housing wealth, financial wealth, and consumer spending. Using the quarterly data for the period 2005:1–2016:1, I estimate vector autoregression models and vector error-correction models, relating consumption to income and wealth measures. I find a statistically significant and rather large effect of housing wealth upon household consumption. The results show that (i) wealth effects are statistically significant and comparatively substantial in magnitude (ii) housing wealth effects tend to be greater while stock market wealth effects are considerable (iii) private consumption responses to the shocks to housing market wealth are relatively stronger than to the shocks in stock market wealth. There is a bidirectional causality running from private consumption to the two wealth forms and vice versa. Overall, the private consumption expenditure response to the changes in different wealth forms is observed to be substantial and significant.

股市财富效应对我国城镇居民消费水平的影响的实证研究

本文通过对相关理论知识的梳理和分析，建立了一个基于莫迪利亚尼的生命周期理论的将股市波动与居民消费之间相关联的实证模型。实证数据选用了我国城镇居民人均可支配收入、人均消费支出、消费者价格指数和上证指数的历史数据，实证结果表明我国股票市场存在正的财富效应，但是较微弱。本文对可能的原因进行了简单分析，并给出三点提高我国股市财富效应的建议。 This article established an empirical model, based on the life cycle theory of Modigliani, which combined the stock market volatility and the effect of consumption through the analysis of related theory knowledge. The part of empirical chose the historical data of urban per capita disposable income, per capita consumption expenditure in our country, the consumer price index, and the historical data of Shanghai stock index. The empirical result shows that the wealth effect of the stock market is positive but relatively weak. This article makes a simple analysis of the reason of the weak but positive wealth effect, and gives three suggestions for the improvement of China’s stock market wealth effect.

Consumption as a Leading Indicator

This article shows that real, total consumption growth deviations from normal stock market wealth effects lead economic growth. Consumers’ expenditures reflect their information about employment opportunities and future real wage growth, as well as information about the volatility of future investment returns. Previous research has shown that stock prices and the slope of the term structure of interest rates reflect forecasted economic growth and profits. It is shown that consumption deviations improve growth forecasts based upon the signals given by the term structure and stock returns over the 50-year period from 1961 to 2011 and in the recent (2006-2009) volatile period of rapid growth followed by financial panic. Putting the information from the stock market, the bond market and consumers together, we find that all three key variables are statistically significant in regressions and out-of-sample simulations and have a combined explanatory power that rivals the Conference Board’s venerable Index of Leading Economic Indicators.

Wealth Effects and Consumption: A Panel VAR Approach

We provide new evidence on the comparison between the stock and housing wealth effects on consumption. Using a panel VAR approach applied to OECD data, we find evidence that the stock market wealth effect is generally the larger. However, with regard to the evolution of asset wealth effects over time, our findings show that the housing wealth effect has outweighed the share market wealth effect in the last decade. We further find that asset wealth has asymmetric effects on consumption, with stronger and more persistent effects from positive asset wealth shocks. Our results have important monetary policy implications for both stock and real estate markets, and offer timely insights into the desirability of current proposals to reduce house price volatility, such as through macro prudential regulations.

A Stocks, Bonds, Consumers Leading Indicator

Real, total consumption growth deviations from normal stock market wealth effects lead economic growth in advanced economies in the Americas, in Europe and in AustralAsia, as shown by Breeden (2013). Consumers’ expenditures reflect their information about employment opportunities and future real wage growth, as well as information about the volatility of future investment returns. Previous research has shown that stock prices and the slope of the term structure of interest rates reflect forecasted economic growth and profits. In this applied article, we put together the readings of stock market investors, bond market investors and issuers, and consumers (each rated by their Z-scores measuring standardized movements) in a simple, economically intuitive and powerful leading index of economic growth. It is shown that consumption deviations improve upon the signals given by the term structure and stock returns, and the combined readings of the “Stocks, Bonds and Consumers Leading Index” (SBCLI) developed here are quite competitive with more complex widely used indexes of leading economic indicators published by the Conference Board and the OECD.

The effect of housing and stock market wealth on consumption in emerging and developed countries

This study examines the long- and short-run relationship between private consumption, housing wealth, stock market wealth and income. In order to asses this relationship empirically, we use pooled mean group estimators of dynamic heterogeneous panel data on a sample of 30 developed and emerging economies. The sample countries are segmented into three separate panels: a developed bank-based panel, a developed market-based panel, and an emerging bank-based panel. Empirical estimates support the existence of long- and short-run stock market wealth effects in both groups of developed countries, with the effect being particularly strong in the developed market-based countries. A moderate long-run housing wealth effect is confirmed only for the developed bank-based countries, while a very strong short-run housing wealth effect is present in the developed market-based countries. As far as the emerging countries are concerned, the evidence is somewhat inconclusive, but it does seem to suggest that both wealth effects are effective in the long run, with housing wealth being more dominant.

The Long-Run Relationship Between Consumption, House Prices, and Stock Prices in South Africa: Evidence from Provincial-level Data

We examine whether strong increases in housing and stock prices have helped sustain consumption across provinces in South Africa from 1995 to 2011. We implement panel cointegration techniques that allow us to circumvent the data restrictions, providing that observations are pooled across provinces. The empirical results provide strong evidence that household consumption adjusts to both house price and stock price fluctuations. More interestingly, the increase in consumption due to house price appreciation (housing wealth effect) is smaller than that generated by the rise in stock prices (stock market wealth effect), possibly suggesting a high stock market capitalization in South Africa. Additionally, we find a bidirectional causality between consumption and both forms of wealth in the long-run, implying that changes in consumption can be used to predict housing and stock price movements and vice versa. Further, the long-run elasticity of income with respect to consumption is found to be not significantly different from unity, therefore corroborating the permanent income hypothesis.

DYNAMICS OF CONSUMER EXPENDITURE AND STOCK MARKET PRICES AND UNCERTAINTY: MALAYSIAN EVIDENCE

The present paper analyzes the role of stock market, more specifically real stock prices and stock market uncertainty/volatility, on private consumption behavior for an emerging market, Malaysia, using quarterly data from 1991 to 2009. Employing the autoregressive distributed lag approach to cointegration test, the paper establishes a long-run equilibrium that ties private consumption to its determinants — real income, real stock prices, real lending rate, and stock market volatility. In the long run, the presence of the stock market wealth effect is documented. At the same time, the stock market volatility is also noted to depress private consumption particularly when the volatility is at the degree as observed during the Asian crisis. The authors further note the short-run influences of real stock price changes on consumption growth and the adjustment of private consumption to the long-run level when it is modeled in an error-correction setting. Our simple simulation indicates that the drop in the private consumption due to the decline in stock market wealth post-crisis is substantial, amounting to 2.7% of average post-crisis gross domestic product.

What drives regional differences in the stock market wealth effect in China?

This article investigates the determinants of stock market wealth effect across regions. Using panel data from China, we find that the stock market wealth effect is more prevalent in regions with more stockholders, regions in which households have higher levels of stock ownership and regions in which households have lower incomes.

Stock market, capital flow and output: some analytical and policy perspectives

The article will theoretically examine how financial opening up can influence the real sector under alternative exchange rate regimes. We will show that private capital flows can produce favourable macroeconomic outcomes through an adjustment in stock market valuation and wealth effect induced by a change in asset prices. What we choose for analytical purpose is an effective demand framework, which can apply to a large class of emerging market economies.