Does Disposable Income Predict Consumption and Stocketurns?
Date Issued
2008
Date
2008
Author(s)
Wang, Yu-Li
Abstract
We rewrite the utility function as the second-order Taylor’s series under the basic assumptions of Consumption-based CAPM. We then show the growth rate of disposable income can affect the growth rate of consumption. Campbell (2003) argues that the growth rate of consumption have influence on the excess return of assets. Based on this point and our finding, we show that one of the risks of the market portfolio can arise from the growth rate of disposable income. A regression of the risk premium of market portfolio on lagged value of the growth rate of disposable income produces statistically significant coefficients using the empirical data of Taiwan and Japan.
Subjects
CCAPM
consumption
disposable income
stock return
predictable
Type
thesis
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ntu-97-R95724070-1.pdf
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