Wealth effect and investor sentiment

This paper investigated the relationship between the U.S. stock and housing markets as well as their influence on the wealth effect of consumption and found that the stock market sentiment index can explain changes in the wealth effect. The empirical results indicate that these two markets exert a wealth effect on consumption. The estimation results of the Markov-switching model indicate two states: a state in which the stock market influences its coexistence with the housing market and a state in which the housing and stock markets are unrelated. Public optimism regarding stock market investments affects the probability of transitioning between these states.     

Does the stock market really cause unemployment? A cross-country analysis

This study examines the relationship between the stock market and unemployment in 30 advanced and 11 developing and emerging countries. The results show that the unemployment rate and stock prices are cointegrated in all country groups; further, the causality between stock prices and unemployment appears in all country groups. Specifically, I found a particularly strong and one-way causal direction from stock prices to the unemployment rate in G7 countries. There is a strong bilateral causal relationship between stock prices and unemployment for other advanced countries. However, in the 11 developing and emerging countries, the causality test results indicate a strong Granger causality from unemployment to stock prices. The results for developing and emerging countries suggest that the unemployment rate can help forecast stock prices, but not vice versa. These findings complement existing studies and deliver useful implications for investors and policymakers, and suggest some new lines for future research.     

THE STOCK MARKET, HOUSING AND CONSUMER SPENDING: A SURVEY OF THE EVIDENCE ON WEALTH EFFECTS

Abstract.  This paper examines the time-series and micro-econometric evidence on the relationship between stock and house prices and consumer spending. The time-series studies distinguish between short-run and long-run links between consumption, income and wealth. They allow us to identify which variables adjust to restore the long-run equilibrium in the case of a shock, and to determine the time taken by the adjustment process. The micro-econometric literature improves our understanding of the link between wealth and expenditure and distinguishes among the alternative hypotheses – of direct wealth effect, common causality and collateral channel – that have been proposed to explain this relationship. The relationship between wealth and consumer spending appears to be strong, but there is some disagreement as to its size and nature. Furthermore, there appear to be some important differences across countries, which should be allowed for by policy makers when appraising the policy implications of a change in asset prices.     

Economic policy uncertainty,oil price volatility and stock market returns: Evidence from a nonlinear model

This paper investigates the nonlinear relationship between economic policy uncertainty, oil price volatility and stock market returns for 25 countries by applying the panel smooth transition regression model. We find that oil price volatility has a negative effect on stock returns, and this effect increases with economic policy uncertainty. Furthermore, there is pronounced heterogeneity in responses. First, oil-exporting countries whose economies depend more on oil prices respond more strongly to oil price volatility than oil-importing countries. Second, stock returns of developing countries are more susceptible to oil price volatility than that of developed countries. Third, crisis plays a crucial role in the relation between oil price volatility and stock returns.     

Developed stock market reaction to political change: a panel data analysis

This paper utilized panel data to examine the effects of political change in developed stock market. According to Hausman test, we capture the stock return by the fixed-effect model to fit the stock market. Political change was originally intended as an incumbent party impetus to create opportunities for progress. However, this has caused great political party distress, creating political change with an inverse stock return relationship in developed countries.     

A probabilistic approach to the structure of rental housing markets

A probabilistic view of the structure of urban housing markets is developed. The demand side is based on aggregate probabilistic demand functions derived from microbehavioral random utility theory. The supply side examines the short-run pricing of the housing stock by developing “asking rent theory,” which explains how a housing supplier must find the optimal rent that maximizes expected revenue. Next, concepts of aggregate market clearing and market equilibrium are defined. Finally, a two-submarket model with specific assumptions regarding the representation of demand and the nature of market signaling is examined in detail and is given a graphical illustration. In closing, directions for extending the probabilistic approach both within and beyond urban analysis are pointed out. All analysis in this paper is for a stationary urban economy, with the housing stock assumed fixed.     

中国股市财富效应静态和动态实证分析

本文利用2002—2008年的月度数据,利用协整分析、误差修正模型等现代计量经济方法和状态空间模型研究了中国股市财富效应问题。研究结果认为:从长期均衡关系看,我国股市财富效应是显著存在;从短期动态关系看,我国股市财富波动对全社会消费支出波动具有负影响但不显著;从股市财富的边际消费倾向的动态过程看,我国股市财富效应始终存在,但挤出效应同样显著。     

Dynamic relationship between stock prices and exchange rates for G-7 countries

There are two major findings from our time-series estimations. First, we find that there is no long-run significant relationship between stock prices and exchange rates in the G-7 countries. This result interfaces with Bahmani-Oskooee and Sohrabian’s (1992) finding, but contrasts with the studies that suggest there be a significant relationship between these two financial variables. Our second finding is that the short-run significant relationship has only been found for one day in certain G-7 countries. For instance, currency depreciation often drags down stock returns in the German financial market, but it stimulates the Canadian and UK markets on the following day. However, an increase in stock price often causes currency depreciation the next day in Italy and Japan. In addition, we also find that the record of stock price and the value of the dollar cannot be depended on when predicting the future in the US, either in the short-run or long-run.     

Growth, development and natural resources: New evidence using a heterogeneous panel analysis

This paper explores whether natural resource abundance is a curse or a blessing. To do so, we firstly develop a theory consistent econometric model, in which we show that there is a long run relationship between real income, the investment rate, and the real value of oil production. Secondly, we investigate the long-run (level) impacts of natural resource abundance on domestic output as well as the short-run (growth) effects. Thirdly, we explicitly recognize that there is a substantial cross-sectional dependence and cross-country heterogeneity in our sample, which covers 53 oil exporting and importing countries with very different historical and institutional backgrounds, and adopt the non-stationary panel methodologies developed by Pesaran (2006) and Pedroni (2000) for estimation. Our results, using the real value of oil production, rent or reserves as a proxy for resource endowment, reveal that oil abundance has a positive effect on both income levels and economic growth. While we accept that oil rich countries could benefit more from their natural wealth by adopting growth and welfare enhancing policies and institutions, we challenge the common view that oil abundance affects economic growth negatively.     

House prices, wealth effects, and the Singapore macroeconomy

This paper examines the effect housing wealth has upon aggregate consumption in Singapore. While past research has focused only on changes in private housing wealth, the residential market in Singapore is dominated by the public housing sector. The massive public housing segment can generate potentially different wealth effects from standard private housing markets given the former’s unique institutional features. In particular, public housing owners who sell their units at market rates can repurchase a public flat at subsidized prices whereas private homeowners typically cannot. We estimate the link between consumption expenditure and both private and public housing wealth using a VARX approach for the Q1:1990–Q4:2002 period. We find that changes in private house prices have no significant effect on aggregate consumption. In contrast, public housing wealth effects are larger and more persistent.     

The effects of taxes and dividend policy on capital accumulation and macroeconomic behavior

This paper analyzes the macrodynamic effects of changes in various tax rates in an intertemporal optimizing framework. Two aspects emphasized include the role of dividend policy and the behavior of the stock market. Both permanent and temporary tax changes are considered, with the transitional adjustment paths being characterized in detail. The contrast between the short-run and long-run effects is highlighted. In particular, an increase in any of the tax rates will cause short-run employment to fall, and with the capital stock fixed instantaneously, the capital-labor ratio immediately rises. Over time, as the capital stock declines, the capital-labor ratio falls.     

Capital market integration in ASEAN: A non-stationary panel data analysis

Motivated by the establishment of ASEAN Economic Community (AEC) at the end of 2015, we examine saving-investment relationship in various subgroups of ASEAN to assess their capital market integration. The results from second generation panel unit-root and cointegration tests that account for cross-sectional dependence as well as estimates of long-run saving-retention rate provide some evidence of market integration in ASEAN. The analysis of short-run dynamics suggests that capital mobility in ASEAN during 1980–2014 appears similar to that in OECD countries during 1970–1999. More importantly, across different panel estimators and subgroups of membership, there is considerable heterogeneity among the member countries. The saving-investment association is very weak, thereby implying very high capital mobility, in more developed members such as Singapore, Malaysia, and Brunei; the association is very strong, implying very low capital mobility, for much less developed members such as Laos, Myanmar, and Cambodia. The results call for renewed effort to develop capital markets in less developed nations and integrate them with the rest of the membership in ASEAN. In this paper, we also address several major shortcomings of the original Feldstein-Horioka framework.     

Price effects after one-day abnormal returns in developed and emerging markets: ESG versus traditional indices

This paper examines price effects related to one day abnormal returns on the stock market indices of both developed and emerging countries while accounting for differences between environmental, social, governance (ESG), and conventional indices. Using daily data from MSCI family indices from 2007 to 2020 and various methods to avoid methodological bias, the following hypotheses are tested: after one-day abnormal returns, specific price effects (momentum/contrarian) appear (H1) in cases of positive (H1.1) and negative (H1.2) returns, price effects after one-day abnormal returns are stronger in the case of traditional indices as compared to ESG indices (H2), price effects after one-day abnormal returns are stronger during the crisis period (H3), a dynamic trigger approach is more appropriate for defining abnormal returns than a static approach (H4), price effects after one-day abnormal returns are stronger in emerging markets as compared to developed ones (H5). The results are mixed in the case of H1 and provide no evidence in favor of H2-H5. They also show no significant differences between ESG and conventional indices. The types of detected price effects are the same for the cases of ESG and conventional indices; their power is different in some cases. Overall, a strong contrarian effect is observed in the US stock market after one-day abnormal returns; a trading strategy constructed based on this observation could generate profits from trading. The main results offer additional evidence against the Efficient Market Hypothesis and provide implications that can assist practitioners in beating the market.     

Growth,deficits and uncertainty: Theoretical aspects and empirical evidence from a panel of 27 countries

We examine the relationship between fiscal deficits and per-capita income growth in a panel of 27 European countries, allowing for perceived risks, in terms of fiscal sustainability, associated with additional government spending. Such risks are proxied by the conditional variability of manufacturing production and stock market returns and by the unconditional variability of two survey-based economic-sentiment indicators. To help clarifying how fiscal variables impact on growth and to provide a point of reference for the interpretation of the empirical results a structural growth model is first identified. We find evidence of an asymmetric relationship, in that fiscal deficits give rise to adverse growth effects if they coincide with high uncertainty regarding the prospects of the economy and no significant negative growth effects in the low-uncertainty case.     

External resources and economic growth: New evidence from EAGLE countries using PMG framework

This study attempts to explore the relationship between economic growth and external resources in the case of emerging and growth-leading economies (EAGLE). Among these economies, a panel of eight countries was studied over the period of 1986–2014. Empirical analyses were performed using panel cointegration and pooled mean group framework. Our findings support positive long- and short-run relationships between imports and gross domestic product (GDP). The results also reveal a negative and significant long-run relationship between foreign direct investment and GDP, whereas no significant evidence has been noted for the short run. Moreover, remittances in EAGLE countries have failed to justify any contribution to GDP in both long and short runs.     

World Economic Prospects

Overview: World growth cut as financial woes persist

• This month sees our world GDP forecast for 2016 cut to 2.3%, from 2.6% previously. Our new forecast implies this year will be the weakest for the world economy since 2009.
• Our 2016 growth forecast was over 3% in mid‐2015. But the economic backdrop has worsened markedly since, with steep drops in stock markets, slumping commodities and widening credit spreads.
• We flagged the risks from the financial market sell‐off last month and conditions have improved little since. Worse, there are some signs that weakness in the real economy may be broadening.
• This month's global downgrade partly reflects familiar factors such as worsening emerging markets: we now expect even deeper recessions in Brazil and Russia.
• The US forecast has also been downgraded again, to 2% from 2.4% last month. This in part reflects a soft Q4 GDP reading, one worrying detail of which was a weaker performance by consumer spending.
• Signs of a slowdown in services were also visible in the PMI surveys for January in the US and Eurozone. Partly as a result, our Eurozone growth forecast has been cut this month to 1.6% from 1.8%.
• With world industry already stagnant, signs of weakness spreading to services are unwelcome. We are particularly concerned that the financial market slump will create a negative global credit and confidence shock.
• Another concern is that the collapse in world stock prices is starting to have ‘negative wealth effects’. For most consumers, wealth effects are more likely to be generated by house price moves. In this respect, there is some room for optimism – house prices are still growing in most of the main economies.
• But housing is weakening in some emerging countries and world house and stock prices have tended to move together since 2007.
• Pressures on policymakers to act remain strong and are increasingly focused on using negative interest rates – as in Japan and Sweden in the last month.

     

银行、市场的有效性与稳定性

传统上,金融系统主要有两种形式,一种是以银行为基础的,另一种是以市场为基础的。它们的有效性需要从几个方面来比较,包括风险分担、信息供给、资助新兴产业、法人治理、法律、政治对金融的影响。这两种金融系统各有利弊。就其稳定性来讲,它们都会遭受经济危机的危害。展望未来的金融系统,应该是以金融中介和市场共为基础,具有很多的优点而几乎没有缺陷。     

Role of credit and monetary policy in determining asset prices: Evidence from emerging market economies

We examine the relative dominance of credit and monetary policy shocks in influencing asset prices in emerging markets. Estimates from panel VAR models for 22 EMEs provide evidence of a significant impact of bank credit on house prices in contrast to trivial impact on stock prices, possibly due to prudential regulations on banks’ exposure to stock markets. Contractionary monetary policy triggers sizeable and persistent decline in stock than housing prices as higher interest rates may render the funding of leverage costlier. Global shocks play an important role in explaining fluctuations in domestic stock prices rather than house prices since the latter class of asset is largely non-tradable across countries.     

Derivatives market and economic growth nexus: Policy implications for emerging markets

The derivatives market plays a crucial role in an economy. However, its link to economic growth and macroeconomic factors seem to be insufficiently covered in academic research despite the publication of many empirical studies on the causality of finance and growth. Recently, many emerging markets, such as Vietnam, have decided to establish a derivatives markets for risk management to ensure stability in the economy. This paper investigates the dynamic relationship among these key variables using up-to-date panel data on 17 countries, for which required data are available until 2017. This study yields various findings. First, bidirectional Granger causality between derivatives markets and economic growth exists internationally. Second, using panel vector autoregression, impulse-response functions, variance decomposition techniques as well as panel econometrics estimations, we find that trade openness and government spending have more effects on the derivatives market than economic growth and inflation. Third, we document that the derivatives market has a more integrated direct relationship with economic growth and macroeconomic factors in high-income countries than their upper-middle-income counterparts. These new findings are essential for consideration by policy makers in emerging markets in relation to the development of their derivatives markets.