Resource title

The U.S. consumption-wealth ratio and foreign stock markets: International evidence for return predictability

Resource image

image for OpenScout resource :: The U.S. consumption-wealth ratio and foreign stock markets: International evidence for return predictability

Resource description

A simple manipulation of the cointegrated framework proposed by Lettau and Ludvigson (2001, 2004) allows to demonstrate that temporary fluctuations of the U.S. consumption-wealth ratio predict excess returns on international stock markets. This finding is the reflection of an important common, temporary component in international stock markets and thus provides empirical evidence for a robust link between stock markets at business cycle frequency. Moreover, I find that between one third and more than a half of the covariation of long-horizon returns on the G7 stock markets is explained by the common transitory stock market component identified in this paper. Furthermore, U.S. households seem to rebalance their foreign equity portfolio in response to the perception of local currency rather than exchange rate adjusted returns.

Resource author

Thomas Nitschka

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22654

Resource license

Adapt according to the presented license agreement and reference the original author.