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Authors
Advisor(s)
Abstract(s)
In this paper, we show, from the consumer’s budget constraint, that the residuals of the
trend relationship among consumption, aggregate wealth, and labour income should
predict both stock returns and government bond yields. We use data for several OECD
countries and find that when agents expect future stock returns to be higher, they will
temporarily allow consumption to rise. Regarding government bond yields, when bonds
are seen as a component of asset wealth, then investors react in the same way. If, however, the increase in the yields is perceived as signalling a future rise in taxes, then they will temporarily reduce their consumption.
Description
Keywords
Consumption Wealth Stock Returns Bond Returns
Pedagogical Context
Citation
Afonso, António, Ricardo M. Sousa. 2011. "Consumption, wealth, stock and government bond returns : international evidence". Instituto Superior de Economia e Gestão. DE Working papers nº 9-2011/DE/UECE
Publisher
ISEG - Departamento de Economia