Can the Consumption–Wealth Ratio Predict Housing Returns? Evidence from OECD Countries

Caporale, Guglielmo Maria; Sousa, Ricardo M.; Wohar, Mark E.

doi:10.1111/1540-6229.12135

Cited by 13 publications

(11 citation statements)

References 106 publications

(261 reference statements)

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“…The improvement in “out‐of‐sample” forecasting accuracy is noticeable vis‐à‐vis the “constant expected returns” benchmark model. As in the case of equity returns (Balcilar et al, ; Caporale & Sousa, ; Lettau & Ludvigson, ; Sousa, ), government bond returns (Afonso & Sousa, ; Sousa, ), and housing risk premium (Balcilar et al, ; Caporale & Sousa, ; Caporale et al, ), our evidence corroborates that equity and term premia and the premium vis‐à‐vis the “safe‐haven” asset are time‐varying.…”

Section: Sensitivity Analysissupporting

confidence: 82%

“…Following the works of Lettau and Ludvigson (), Sousa (), Afonso and Sousa (), Caporale and Sousa (), Caporale, Sousa and Wohar (), and Balcilar, Gupta, Sousa, and Wohar (), among others, we can use the intertemporal budget constraint of a representative consumer to derive the equation

\underset{c a y_{t}}{\underset{true︸}{c_{t} - γ a_{t} - (1 - γ) y_{t}}} = E_{t} {falsefalse}_{\sum}^{h = 1} ρ_{w}^{h} (γ r_{a, t + h} + (1 - γ) r_{h, t + h} - normalΔ c_{t + h}) + ζ_{t},

where

c a y_{t} \equiv c_{t} - γ a_{t} - (1 - γ) y_{t}

.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

“…For example, Afonso and Sousa () show that

c a y

forecasts both stock returns and government bond yields, and Caporale and Sousa () and Caporale, Sousa, and Wohar () investigate the predictive power of

c a y

for housing risk premia. Balcilar, Gupta, Sousa, and Wohar () account for regime changes in the relationship between the consumption–wealth ratio (and its Markov switching version) and housing returns (as well as their volatility) using a nonparametric causality‐in‐quantiles test.…”

mentioning

confidence: 99%

“…Panel frameworks have been used in Caporale and Sousa (), Caporale, Sousa and Wohar (), and De Castro and Issler ().…”

mentioning

confidence: 99%

See 3 more Smart Citations

Consumption, asset wealth, equity premium, term spread, and flight to quality

Costantini

Sousa

2019

Euro Fin Management

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We link transitory deviations of consumption from its equilibrium relationship with aggregate wealth and labor income to equity returns on the one hand, and to two characteristics of bond investors-the premium demanded to hold long-term assets, and "flight to quality" behavior-on the other hand. Using a panel of 10 euro area countries over the period 1984Q1-2017Q4, we show that a rise in the consumption-wealth ratio predicts both higher equity returns and the future term spread, while a fall in the consumption-wealth ratio explains a large fraction of the rise in the spread between the "risky" and the "safe-haven" bond.

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Section: Sensitivity Analysissupporting

confidence: 82%

\underset{c a y_{t}}{\underset{true︸}{c_{t} - γ a_{t} - (1 - γ) y_{t}}} = E_{t} {falsefalse}_{\sum}^{h = 1} ρ_{w}^{h} (γ r_{a, t + h} + (1 - γ) r_{h, t + h} - normalΔ c_{t + h}) + ζ_{t},

where

c a y_{t} \equiv c_{t} - γ a_{t} - (1 - γ) y_{t}

.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

“…For example, Afonso and Sousa () show that

c a y

forecasts both stock returns and government bond yields, and Caporale and Sousa () and Caporale, Sousa, and Wohar () investigate the predictive power of

c a y

mentioning

confidence: 99%

“…Panel frameworks have been used in Caporale and Sousa (), Caporale, Sousa and Wohar (), and De Castro and Issler ().…”

mentioning

confidence: 99%

See 2 more Smart Citations

Consumption, asset wealth, equity premium, term spread, and flight to quality

Costantini

Sousa

2019

Euro Fin Management

Self Cite

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show abstract

“…, Guo and Hardin , Fereidouni and Tajaddini , Caporale et al . ). The well‐established Life‐cycle Hypothesis predicts that households desire to consume smoothly over their life‐cycle and recognizes that housing can be used as a buffer against adverse shocks, such as the risk of unemployment (Carroll et al .…”

Section: Literature Reviewmentioning

confidence: 97%

Housing, Wealth, Income and Consumption: China and Homeownership Heterogeneity

Chen

Hardin

2018

Real Estate Economics

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Impacts on consumer spending in urban China associated with housing value, housing equity, financial assets and household income are evaluated using longitudinal data from the China Family Panel Studies (CFPS) survey. Findings suggest that the housing wealth effect on household consumption in China is much larger than has been shown for developed economies. The larger impact is prospectively related to structural limits on investing which favor real estate ownership, along with the dominant position of housing in total household wealth. We also find that a household's consumption varies across housing tenure. Homeowners having joint ownership of property on average have the highest consumption propensity, while those having sole ownership of property consume the most in response to appreciation in housing wealth.

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What Can Fifty-Two Collateralizable Wealth Measures Tell Us About Future Housing Market Returns? Evidence from U.S. State-Level Data

Balcılar

Gupta

Sousa

et al. 2019

J Real Estate Finan Econ

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We use a novel U.S. state-level database to evaluate the role of housing wealth as a provider of collateral services. First, we estimate the cointegrating relationship between housing wealth and labour income for all 50 states, as well as the District of Columbia (D.C.), and overall U.S. Then, we assess the predictive ability of the housing wealth-to-income ratios (labelled by hwy) for statelevel future real housing returns. We uncover: (i) positive estimates for the elasticity of housing wealth with respect to labour income, which are also largely heterogeneous across U.S. states; and (ii) a negative link between the housing wealth-to-income ratios and future housing returns, albeit the forecasting power of hwy also varies considerably across states. We conclude that country-level regressions typically "mask" this diversity of features surrounding the usefulness of housing in collateral provision and unfavourable labour income shock smoothing that state-level frameworks are able to recover.

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Can the Consumption–Wealth Ratio Predict Housing Returns? Evidence from OECD Countries

Cited by 13 publications

References 106 publications

Consumption, asset wealth, equity premium, term spread, and flight to quality

Consumption, asset wealth, equity premium, term spread, and flight to quality

Housing, Wealth, Income and Consumption: China and Homeownership Heterogeneity

What Can Fifty-Two Collateralizable Wealth Measures Tell Us About Future Housing Market Returns? Evidence from U.S. State-Level Data

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