Wealth Ratio (wealth + ratio)

Distribution by Scientific Domains


Selected Abstracts


STOCK PRICE VOLATILITY, NEGATIVE AUTOCORRELATION AND THE CONSUMPTION,WEALTH RATIO: THE CASE OF CONSTANT FUNDAMENTALS

PACIFIC ECONOMIC REVIEW, Issue 2 2010
Charles Ka Yui Leung
Based on infinite horizon models, previous theoretical works show that the empirical stock price movement is not justified by the changes in dividends. The present paper provides a simple overlapping generations model with constant fundamentals in which the stock price displays volatility and negative autocorrelation even without changes in dividend. The horizon of the agents matters. In addition, as in recent empirical works, the aggregate consumption,wealth ratio ,predicts' the asset return. Thus, this framework may be useful in understanding different stylized facts in asset pricing. Directions for future research are also discussed. [source]


Market Price of Risk: A Comparison among the United States, United Kingdom, Australia and Japan,

INTERNATIONAL REVIEW OF FINANCE, Issue 4 2009
KENT WANG
ABSTRACT This study examines and compares the market price of risk of the S&P 500, FTSE 100, All Ordinaries, and Nikkei 225 markets from 1984 to 2009 in the framework of Intertemporal Capital Asset Pricing Model (ICAPM). We follow the Vector Autoregressive instrumental variable approach in identifying the risk and hedge components of market returns and argue that in the context of market integration, covariance with a world market portfolio is a better measure of market risk than conditional market variance. Evidence is documented in support of using covariance as a risk measure in explaining market risk premiums in the Australian and Japanese markets. CAY, the consumption wealth ratio from the US market is found to be a robust state variable that helps to explain both conditional variance and covariance processes in the four markets. The market prices of risk, after controlling for the hedging demands, are positive and significant with the United States having the highest price of risk. The results are confirmed using a series of robustness tests that include varying the sampling interval. [source]


STOCK PRICE VOLATILITY, NEGATIVE AUTOCORRELATION AND THE CONSUMPTION,WEALTH RATIO: THE CASE OF CONSTANT FUNDAMENTALS

PACIFIC ECONOMIC REVIEW, Issue 2 2010
Charles Ka Yui Leung
Based on infinite horizon models, previous theoretical works show that the empirical stock price movement is not justified by the changes in dividends. The present paper provides a simple overlapping generations model with constant fundamentals in which the stock price displays volatility and negative autocorrelation even without changes in dividend. The horizon of the agents matters. In addition, as in recent empirical works, the aggregate consumption,wealth ratio ,predicts' the asset return. Thus, this framework may be useful in understanding different stylized facts in asset pricing. Directions for future research are also discussed. [source]


Progress from forecast failure,the Norwegian consumption function

THE ECONOMETRICS JOURNAL, Issue 1 2002
Řyvind Eitrheim
After a forecast failure, a respecification is usually necessary to account for the data ex post, in which case there is a gain in knowledge as a result of the forecast failure. Using Norwegian consumption as an example, we show that the financial deregulation in the mid-1980s led to forecast failure both for consumption functions (CFs) and Euler equations (EEs). We argue in the paper that such forecast failures would appear to be at odds with an underlying DGP belonging to the class of EEs, a result that also explains why progress took the form of a respecified CF where wealth plays a central role. That model is updated and is shown to have constant parameters despite huge changes in the income to wealth ratio over nine years of new data. [source]


Consumption, Aggregate Wealth, and Expected Stock Returns

THE JOURNAL OF FINANCE, Issue 3 2001
Martin Lettau
This paper studies the role of fluctuations in the aggregate consumption,wealth ratio for predicting stock returns. Using U.S. quarterly stock market data, we find that these fluctuations in the consumption,wealth ratio are strong predictors of both real stock returns and excess returns over a Treasury bill rate. We also find that this variable is a better forecaster of future returns at short and intermediate horizons than is the dividend yield, the dividend payout ratio, and several other popular forecasting variables. Why should the consumption,wealth ratio forecast asset returns? We show that a wide class of optimal models of consumer behavior imply that the log consumption,aggregate wealth (human capital plus asset holdings) ratio summarizes expected returns on aggregate wealth, or the market portfolio. Although this ratio is not observable, we provide assumptions under which its important predictive components for future asset returns may be xpressed in terms of observable variables, namely in terms of consumption, asset holdings and labor income. The framework implies that these variables are cointegrated, and that deviations from this shared trend summarize agents' expectations of future returns on the market portfolio. [source]