This paper studies the signalling effect of the consumption-wealth ratio (cay) on German stock returns via vector error correction models (VECMs). The effect of cay on U.S. stock returns has been recently confirmed by Lettau and Ludvigson with a two-stage method. In this paper, performance of...

We test conditional consumption capital asset pricing models (CCAPMs) in the Australian equity market. The conditional variables used are Lettau and Ludvigson’s (2001a, b) consumption–wealth ratio, Campbell and Cochrane’s (1999) surplus consumption ratio and Santos and...

A good deal of time has been devoted to whether more open economies have bigger governments (compensation hypothesis) or sma-ller ones (efficiency hypothesis). However, most of the research has been focused mainly on trade openness, which is clearly restrictive in a world with increasingly...

In this paper, we employ a portfolio approach based on a two-country world to study the impact of financial openness on the size of government and on other key economic variables, including the consumption-wealth ratio, the growth rate of wealth, and welfare (assuming that public spending is...

This paper studies the impact of financial openness on the size of government, and other key economic variables, such as the consumption-wealth ratio, the growth rate of wealth, and welfare, in a two-country world, based on a portfolio approach, assuming that public spending is...

It is well documented that macroeconomic fundamentals are little help in predicting changes in the nominal exchange rates compared to the predictions made by a simple random walk. Letta and Ludvigson (2001) find that fluctuations in the common long-term trend in consumption, asset wealth, and...

Sousa (2010a) shows that the residuals from the common trend among consumption, financial wealth, housing wealth and human capital, cday, can predict quarterly stock market returns better than cay from Lettau and Ludvigson (2001), which considers aggregate wealth instead. In this paper, we use a...

Using data from three emerging South East Asian equity markets we find that there is a positive and significant relationship between â and average stock returns in these markets. These results are in sharp contrast to recent results in the US (see Fama and French (1992)) and in previous studies...