Lack of consumer confidence and stock returns
Journal
Journal of Empirical Finance
Journal Volume
18
Journal Issue
2
Pages
225-236
Date Issued
2011
Author(s)
Abstract
This paper investigates the link between the lack of consumer confidence and stock returns during market fluctuations. Using a Markov-switching framework, we first focus on whether the shock to consumer confidence has asymmetric effects on stock returns. We also examine whether the decreased confidence pushes the stock market into bear territory. Empirical evidence using monthly returns on Standard & Poor's S&P 500 price index suggests that market pessimism has larger impacts on stock returns during bear markets. Moreover, the lack of consumer confidence leads to a higher probability of switching to a bear market regime. © 2010 Elsevier B.V.
Type
journal article