Consumption, aggregate wealth and expected stock returns: a quantile cointegration approach

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Ricardo Quineche
Keyword(s):  
Stock Returns ◽  
The United States ◽  
Labor Income ◽  
Left Tail ◽  
Long Run ◽  
Short Run ◽  
Excess Stock Returns ◽  
Aggregate Wealth ◽  
Risk Free Rate ◽  
The Right

Abstract This paper empirically examines the long-run relationship between consumption, asset wealth and labor income (i.e., cay) in the United States through the lens of a quantile cointegration approach. The advantage of using this approach is that it allows for a nonlinear relationship between these variables depending on the level of consumption. We estimate the coefficients using a Phillips–Hansen type fully modified quantile estimator to correct for the presence of endogeneity in the cointegrating relationship. To test for the null of cointegration at each quantile, we apply a quantile CUSUM test. Results show that: (i) consumption is more sensitive to changes in labor income than to changes in asset wealth for the entire distribution of consumption, (ii) the elasticity of consumption with respect to labor income (asset wealth) is larger at the right (left) tail of the consumption distribution than at the left (right) tail, (iii) the series are cointegrated around the median, but not in the tails of the distribution of consumption, (iv) using the estimated cay obtained for the right (left) tail of the distribution of consumption improves the long-run (short-run) forecast ability on real excess stock returns over a risk-free rate.

Consumption, Aggregate Wealth and Expected Stock Returns: An FCVAR Approach

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Ricardo Quineche
Keyword(s):  
Stock Returns ◽  
General Framework ◽  
Estimation Procedure ◽  
Zero Order ◽  
Labor Income ◽  
First Order ◽  
Long Run ◽  
Expected Stock Returns ◽  
Aggregate Wealth ◽  
Long Run Equilibrium

AbstractIn their seminal work, Lettau, M., and S. Ludvigson, 2001, “Consumption, Aggregate Wealth, and Expected Stock Returns.” The Journal of Finance 56 (3): 815–49. https://doi.org/10.1111/0022-1082.00347, demonstrated that there exists a long-run relationship between consumption, asset holdings, and labor income. They denoted this relationship as cay and showed it to be quite successful in predicting the behavior of real stock returns. Their estimation procedure assumes that consumption, asset wealth, and labor income are first-order integrated (I(1), nonstationary) and that their linear combination forms a zero-order integrated (I(0), stationary) series. This paper proposes a more general framework in the estimation of the cay model by allowing both the series and the long-run equilibrium to be fractionally integrated. We use the recently developed Fractionally Cointegrated VAR (FCVAR) approach to estimate the cay model. Results show that: (i) the series are nonstationary but mean-reverting processes, (ii) there exists a long-run equilibrium between consumption, asset wealth, and labor income, (iii) this long-run relationship is a stationary fractionally integrated process, and (iv) the estimated cay using the FCVAR approach shows the same desirable forecasting properties as its predecessor.

Economic Consequences of Recycling for the Canadian Newsprint Industry

1974 ◽  
Vol 4 (1) ◽  
pp. 15-22
Author(s):  
Thomas L. Tucker
Keyword(s):  
United States ◽  
The United States ◽  
Economic Consequences ◽  
Cost Curve ◽  
Eastern Canada ◽  
Real Cost ◽  
Long Run ◽  
Recycled Fiber ◽  
Short Run ◽  
The Right

The probable future structure of the Canadian newsprint industry is outlined and the likely economic consequences to Canadian newsprint producers of the increased consumption of newsprint made within the United States from recycled fiber is demonstrated. The overmature nature of the Canadian newsprint industry is shown. Old mills and plant capital, stabilized markets, asset fixity, and real cost increases are given as major short-run structural weaknesses, especially for eastern Canadian mills, which make the industry susceptible to marginal market shifts such as competition from recycled newsprint paper.Densely populated areas adjacent to eastern Canada are shown to attract not only the output from Ontario, Quebec, and the Maritimes but also the secondary fiber newsprint mills. Such an intrusion in the market, while marginal in effect, only magnifies the structural weaknesses of a mature industry.Two factors much more critical to the structure of the Canadian newsprint industry appear to be the probable movement up and to the right along the industry's long-run cost curve (real cost increases) and mill capacity increases within the United States. Changes in these two factors should overshadow the influence of recycling at least through 1985.

The Impact of Monetary and Fiscal Policies on the Stock Market in the United States (U.S); Evidence from Linear ARDL Framework

2020 ◽  
Vol 11 (1) ◽  
pp. 132-132
Author(s):  
Aref Emamian
Keyword(s):  
United States ◽  
Stock Market ◽  
The United States ◽  
Real Effective Exchange Rate ◽  
Annual Data ◽  
Fiscal Policies ◽  
Long Run ◽  
The Us ◽  
Short Run ◽  
The Impact

This study examines the impact of monetary and fiscal policies on the stock market in the United States (US), were used. By employing the method of Autoregressive Distributed Lags (ARDL) developed by Pesaran et al. (2001). Annual data from the Federal Reserve, World Bank, and International Monetary Fund, from 1986 to 2017 pertaining to the American economy, the results show that both policies play a significant role in the stock market. We find a significant positive effect of real Gross Domestic Product and the interest rate on the US stock market in the long run and significant negative relationship effect of Consumer Price Index (CPI) and broad money on the US stock market both in the short run and long run. On the other hand, this study only could support the significant positive impact of tax revenue and significant negative impact of real effective exchange rate on the US stock market in the short run while in the long run are insignificant. Keywords: ARDL, monetary policy, fiscal policy, stock market, United States

scholarly journals Long Run Returns Predictability and Volatility with Moving Averages

Risks ◽  
2018 ◽  
Vol 6 (4) ◽  
pp. 105 ◽  
Author(s):  
Chia-Lin Chang ◽  
Jukka Ilomäki ◽  
Hannu Laurila ◽  
Michael McAleer
Keyword(s):  
Financial Performance ◽  
Stock Returns ◽  
Moving Average ◽  
Long Run ◽  
Returns Predictability ◽  
Rolling Window ◽  
Risk Free Rate ◽  
Data Frequency ◽  
Predictability Of Returns ◽  
Free Rate

This paper examines how the size of the rolling window, and the frequency used in moving average (MA) trading strategies, affects financial performance when risk is measured. We use the MA rule for market timing, that is, for when to buy stocks and when to shift to the risk-free rate. The important issue regarding the predictability of returns is assessed. It is found that performance improves, on average, when the rolling window is expanded and the data frequency is low. However, when the size of the rolling window reaches three years, the frequency loses its significance and all frequencies considered produce similar financial performance. Therefore, the results support stock returns predictability in the long run. The procedure takes account of the issues of variable persistence as we use only returns in the analysis. Therefore, we use the performance of MA rules as an instrument for testing returns predictability in financial stock markets.

scholarly journals Impact of Public Debt, Deficit and Debt Financing on Private Investment in a Large Country: Evidence from the United States

2020 ◽  
Vol 6 (2) ◽  
pp. 139-161
Author(s):  
Amir Kia
Keyword(s):  
Public Debt ◽  
Public Investment ◽  
Government Expenditure ◽  
Private Investment ◽  
Adjustment Costs ◽  
The United States ◽  
Direct Impact ◽  
Large Country ◽  
Long Run ◽  
Short Run

This paper analyses the direct impact of fiscal variables on private investment. The current literature ignores one or more fiscal variables and, in many cases, the foreign financing of debt. In this paper, an aggregate investment function for an economy in which firms incur adjustment costs in their investment process is developed. The developed model incorporates the direct impact of government expenditure, public debt and investment, deficits and foreign-financed debt on private investment. The model is tested on US data. It is found that public investment does not have any impact on private investment, but government expenditure, deficit, debt and foreign-financed debt crowd out private investment over the long run. However, deficit crowds in the private investment over the short run.

The Impact of Economic Sentiment, Consumer, Producer and Investor's Confidence Indices on Stock Returns of the Listed Companies in FTSE-20 in Greece

2018 ◽  
pp. 162-209
Author(s):  
Constantine Cantzos ◽  
Petros Kalantonis ◽  
Aristidis Papagrigoriou ◽  
Stefanos Theotokas
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Macroeconomic Variables ◽  
Production Index ◽  
Behavioral Indicators ◽  
Portfolio Returns ◽  
Long Run ◽  
Short Run ◽  
The Impact ◽  
The Relationship

This chapter examines the relationship between stock returns of companies listed in the FTSE-20 on the Athens Exchange and behavioral indicators. The research is based on the behavioral APT model, which examines stock returns' risk factors through the involvement of macroeconomic variables and behavioral indicators. The data is the closing price of 17 shares listed in the FTSE-20 index, a number of macroeconomic variables, and a series of behavioral indicators for the period of January 2001-December 2014. Regressions were conducted with dependent variable stock returns of a portfolio invested equally in these 17 stocks. In addition, the research tests the existence of long-run and short-run equilibrium and causality. The change in the industrial production index along with the risk premium have a positive and significant impact on the portfolio returns. Johansen's test showed that there is a long-run equilibrium between stock returns, macroeconomic variables, and behavioral indicators. The VECM and VAR models showed that there is not long and short-run causality, not even Granger causality. No similar research has been conducted in Greece, thus it fills a literature gap.

COMPARING THE IMPACTS OF OIL PRICE SHOCKS ACROSS STOCK MARKETS

2015 ◽  
Vol 77 (20) ◽  
Author(s):  
Siok Kun Sek ◽  
Zhan Jian Ng ◽  
Wai Mun Har
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Spillover Effect ◽  
Spillover Effects ◽  
Oil Price ◽  
Multivariate Garch ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Long Run ◽  
Short Run

We conduct empirical analyses on comparing the spillover effects of oil price shocks on the volatility of stock returns between oil importing and oil exporting countries. In particular, we seek to study how the nature of oil price shocks differs due to the oil dependency factor and how the stock markets react to such shocks. Applying the multivariate GARCH-BEKK(1,1) model, our results detect spillover effects between crude oil price and stock returns for all countries. The short run persistencies of shocks are smaller but the persistencies of shocks are very high in the long run. The results hold for both groups of countries. The results imply larger spillover effect from oil price shock into stock market in the oil importing countries.

Impact of Share Splits on Stock Returns: Evidences from India

2019 ◽  
Vol 23 (4) ◽  
pp. 432-441
Author(s):  
Bilal Ahmad Pandow ◽  
Khurshid Ahmad Butt
Keyword(s):  
Stock Returns ◽  
Impact Analysis ◽  
Positive Influence ◽  
Market Model ◽  
Sign Test ◽  
Rank Test ◽  
Long Run ◽  
Short Run ◽  
Study Methodology ◽  
The Impact

This article empirically examines the impact of stock splits on the price movements and returns of the scrips listed on the stock market in India. The study makes use of the standard event study methodology to measure the significance of unusual yield associated with the event. To calculate the returns, the study employs market model. Also, it uses parametric tests, such as t-statistic, and non-parametric test, such as Corrado Rank Test, Generalized Rank Test and Sign Test, to check the significance and robustness of abnormal return (AR), average AR, and cumulative average AR. Indisputably, the results are somewhat different from the evidences found in developed markets. Mostly in these countries, the event witnesses unusual optimistic yields. The results suggest that there is a positive AR adjacent to the effective day (ED) of the event in the short run. However, in the long run, negative ARs in the post-effective to ED+90 days window is witnessed. Further, the analysis also suggests that share splits do not have a positive influence on the share capital of the investors. The results are based on the 10-days event and 90-days estimation window and are the main limitation of the study. Hence, the windows can be both expanded and reduced to have a better holistic impact analysis of the share splits and stock returns of the selected firms.

Six Sigma metrics based on lognormal distribution for life tests

2019 ◽  
Vol 36 (9) ◽  
pp. 1477-1489 ◽  
Author(s):  
Ravichandran Joghee
Keyword(s):  
Six Sigma ◽  
Lognormal Distribution ◽  
Tail Probability ◽  
Tail Probabilities ◽  
Content Type ◽  
Underlying Distribution ◽  
Left Tail ◽  
Long Run ◽  
Life Tests ◽  
The Right

Purpose The purpose of this paper is to propose an approach for studying the Six Sigma metrics when the underlying distribution is lognormal. Design/methodology/approach The Six Sigma metrics are commonly available for normal processes that are run in the long run. However, there are situations in reliability studies where non-normal distributions are more appropriate for life tests. In this paper, Six Sigma metrics are obtained for lognormal distribution. Findings In this paper, unlike the normal process, for lognormal distribution, there are unequal tail probabilities. Hence, the sigma levels are not the same for left-tail and right-tail defects per million opportunities (DPMO). Also, in life tests, while left-tail probability is related to DPMO, the right tail is considered as extremely good PMO. This aspect is introduced and based on which the sigma levels are determined for different parameter settings and left- and right-tail probability combinations. Examples are given to illustrate the proposed approach. Originality/value Though Six Sigma metrics have been developed based on a normality assumption, there have been no studies for determining the Six Sigma metrics for non-normal processes, particularly for life test distributions in reliability studies. The Six Sigma metrics developed here for lognormal distribution is new to the practitioners, and this will motivate the researchers to do more work in this field of research.

scholarly journals Local Economic Impacts of Coal Mining in the United States 1870 to 1970

2016 ◽  
Vol 76 (4) ◽  
pp. 1152-1181 ◽  
Author(s):  
Mike Matheis
Keyword(s):  
Coal Mining ◽  
Resource Curse ◽  
The United States ◽  
County Level ◽  
Long Run ◽  
Local Areas ◽  
Manufacturing Activity ◽  
Short Run ◽  
Current Resource ◽  
Net Benefits

This article expands upon the current “resource curse” literature by using newly collected county data, spanning over a century, to capture the short- and long-run effects of coal mining activity. It provides evidence that increased levels of coal production had positive net impacts on county-level population and manufacturing activity over an initial ten-year span, which become negative over the subsequent decades. The results provide evidence that any existence of a “resource curse” on local areas due to coal mining is a long-run phenomenon, and in the short run there are potential net benefits.

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