CAN BUSINESS CONFIDENCE AND CONSUMER CONFIDENCE JOINTLY EXPLAIN STOCK MARKET RETURNS? EVIDENCE FROM PANEL DATA

10.6291/AIAPM.2016.07.01

Vichet Sum；Mohammad Ali；Monisha Das

Business Confidence ； Consumer Confidence ； Stock Market Returns

Advances in Investment Analysis and Portfolio Management

7期（2016 / 03 / 01）

1 - 7

英文

This study examines if business confidence and consumer confidence can explain variability of stock market returns across countries. Based on the analysis of monthly time series cross-sectional (panel) data from 31 countries, the results show that stock market return goes up by an average of 154 basis points as the change of business confidence increases across time and between countries by one unit when consumer confidence is held constant. Likewise, as the change of consumer confidence increases across time and between countries by one unit, stock market return goes up by an average of 468 basis points while holding business confidence constant. The findings provide empirical evidence of the business confidence and consumer confidence in explaining stock returns across countries. The results provide important implication for stock market valuation, investment and risk management.

1. Bernanke, B. S.(1983).Irreversibility, uncertainty, and cyclical investment.The Quarterly Journal of Economics,98,85-106.
2. Blanchard, O.(1993).Consumption and the recession of 1990-1991.The American Economic Review,83(2),270-274.
3. Cevik, E.,Korkmaz, T.,Atukeren, E.(2012).Business confidence and US stock returns: A time-varying Markov regime-switching approach.Applied Financial Economics,22,299-312.
4. Chen, S. S.(2011).Lack of consumer confidence and stock returns.Journal of Empirical Finance,18,225-236.
5. Chen, T. K.,Liao, H. H.,Huang, H. C.(2014).Macroeconomic risks of supply chain counterparties and corporate bond yield spreads.Review of Quantitative Finance and Accounting,43,463-481.
6. Fisher, K. L.,Statman, M.(2003).Consumer confidence and stock returns.The Journal of Portfolio Management,30(1),115-127.
7. Howrey, E. P.(2001).The predictive power of the index of consumer sentiment.Brookings Papers on Economic Activity,2001(1),175-216.
8. Jansen, W. J.,Nahuis, N. J.(2003).The stock market and consumer confidence: European evidence.Economics Letters,79,89-98.
9. Lemmon, M.,Portniaguina, E.(2006).Consumer confidence and asset prices: Some empirical evidence.Review of Financial Studies,19,1499-1529.
10. Li, C. A.,Yeh, C. C.(2011).Investor psychological and behavioral bias: Do high sentiment and momentum exist in the China stock market?.Review of Pacific Basin Financial Markets and Policies,14,429-448.
11. Otoo, M. W.(1999).,Washington, DC.:Board of Governors of the Federal Reserve.
12. Romer, C. D.(1990).The great crash and the onset of the great depression.The Quarterly Journal of Economics,105,597-624.
13. Sias, R.(1997).The sensitivity of individual and institutional investors' expectations to changing market conditions: Evidence from closed-end funds.Review of Quantitative Finance and Accounting,8,245-269.