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.

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

Costantini M.;
2020-01-01

Abstract

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.
File in questo prodotto:
File Dimensione Formato  
Costantini_Sousa_European_Financial_Managment_2020.pdf

solo utenti autorizzati

Tipologia: Documento in Versione Editoriale
Licenza: Creative commons
Dimensione 1.47 MB
Formato Adobe PDF
1.47 MB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11697/147431
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 4
  • ???jsp.display-item.citation.isi??? 4
social impact