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Consumption, Wealth and Expected Stock Returns in Australia *
Author(s) -
FISHER LANCE A.,
VOSS GRAHAM M.
Publication year - 2004
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2004.00194.x
Subject(s) - stock (firearms) , economics , consumption (sociology) , econometrics , private consumption , financial economics , monetary economics , geography , social science , archaeology , sociology , fiscal policy
The present paper investigates the relationship between consumption, labour income and household wealth in Australia within the inter‐temporal consumption framework developed by Lettau and Ludvigson (2001). We first test for a long‐run relationship among these series and then investigate whether private dissaving, measured as the deviation from the estimated relationship, has information content for future stock returns. We find that private dissaving has predictive power for quarterly returns on the ASX200 and for returns over long holding periods. The recent substantial decline in private dissaving suggests that consumers view the recent surge in non‐financial wealth as transitory and expect a correction.