Consumer confidence and stock returns over market fluctuations

This paper investigates the link between consumer confidence and stock returns over stock market fluctuations. In particular, I focus on whether the returns have asymmetric effects on confidence. The empirical results from both in-sample and out-of-sample tests provide strong evidence of the existence of an asymmetric linkage between stock returns and consumer confidence: the impacts of returns on confidence are larger in bear markets. Moreover, variables such as the term structure, changes in federal fund rates, changes in unemployment rates, and changes in world oil prices are found to be negatively associated with consumer confidence, as expected.