IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v38y2016icp111-123.html
   My bibliography  Save this article

Wealth effect and investor sentiment

Author

Listed:
  • Tsai, I-Chun

Abstract

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.

Suggested Citation

  • Tsai, I-Chun, 2016. "Wealth effect and investor sentiment," The North American Journal of Economics and Finance, Elsevier, vol. 38(C), pages 111-123.
  • Handle: RePEc:eee:ecofin:v:38:y:2016:i:c:p:111-123
    DOI: 10.1016/j.najef.2016.09.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062940816300912
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.najef.2016.09.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Okunev, John & Wilson, Patrick & Zurbruegg, Ralf, 2002. "Relationships between Australian Real Estate and Stock Market Prices--A Case of Market Inefficiency," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(3), pages 181-192, April.
    2. Jacobsen, Ben & Lee, John B. & Marquering, Wessel & Zhang, Cherry Y., 2014. "Gender differences in optimism and asset allocation," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 630-651.
    3. Malcolm Baker & Jeffrey Wurgler, 2006. "Investor Sentiment and the Cross‐Section of Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1645-1680, August.
    4. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
    5. Panayotis Kapopoulos & Fotios Siokis, 2005. "Stock and real estate prices in Greece: wealth versus 'credit-price' effect," Applied Economics Letters, Taylor & Francis Journals, vol. 12(2), pages 125-128.
    6. Lizieri, Colin & Satchell, Stephen, 1997. "Interactions between Property and Equity Markets: An Investigation of Linkages in the United Kingdom 1972-1992," The Journal of Real Estate Finance and Economics, Springer, vol. 15(1), pages 11-26, July.
    7. I-Chun Tsai & Cheng-Feng Lee & Ming-Chu Chiang, 2012. "The Asymmetric Wealth Effect in the US Housing and Stock Markets: Evidence from the Threshold Cointegration Model," The Journal of Real Estate Finance and Economics, Springer, vol. 45(4), pages 1005-1020, November.
    8. Kiefer, Nicholas M, 1978. "Discrete Parameter Variation: Efficient Estimation of a Switching Regression Model," Econometrica, Econometric Society, vol. 46(2), pages 427-434, March.
    9. Gregory W. Brown & Michael T. Cliff, 2005. "Investor Sentiment and Asset Valuation," The Journal of Business, University of Chicago Press, vol. 78(2), pages 405-440, March.
    10. Green, Richard K., 2002. "Stock prices and house prices in California: new evidence of a wealth effect?," Regional Science and Urban Economics, Elsevier, vol. 32(6), pages 775-783, November.
    11. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2001. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Department of Economics, Working Paper Series qt44k6g6vx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    12. Jan Kakes & Jan Willem Van Den End, 2004. "Do stock prices affect house prices? Evidence for the Netherlands," Applied Economics Letters, Taylor & Francis Journals, vol. 11(12), pages 741-744.
    13. Liu, Crocker H. & Hartzell, David J. & Greig, Wylie & Grissom, Terry V., 1990. "The Integration of the Real Estate Market and the Stock Market: Some Preliminary Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 3(3), pages 261-282, September.
    14. Wai Mun Fong, 2014. "The MAX Effect," Palgrave Macmillan Books, in: The Lottery Mindset: Investors, Gambling and the Stock Market, chapter 7, pages 138-155, Palgrave Macmillan.
    15. Gregory D Sutton, 2002. "Explaining changes in house prices," BIS Quarterly Review, Bank for International Settlements, September.
    16. Yoshikawa, Hiroshi & Ohtaka, Fumio, 1989. "An analysis of female labor supply, housing demand and the saving rate in Japan," European Economic Review, Elsevier, vol. 33(5), pages 997-1023, May.
    17. Martha Starr-McCluer, 2002. "Stock Market Wealth and Consumer Spending," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 69-79, January.
    18. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
    19. Stambaugh, Robert F. & Yu, Jianfeng & Yuan, Yu, 2012. "The short of it: Investor sentiment and anomalies," Journal of Financial Economics, Elsevier, vol. 104(2), pages 288-302.
    20. John Okunev & Patrick J. Wilson, 1997. "Using Nonlinear Tests to Examine Integration Between Real Estate and Stock Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(3), pages 487-503, September.
    21. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
    22. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
    23. Ding, David K. & Charoenwong, Charlie & Seetoh, Raymond, 2004. "Prospect theory, analyst forecasts, and stock returns," Journal of Multinational Financial Management, Elsevier, vol. 14(4-5), pages 425-442.
    24. Chen, Nan-Kuang, 2001. "Asset price fluctuations in Taiwan: evidence from stock and real estate prices 1973 to 1992," Journal of Asian Economics, Elsevier, vol. 12(2), pages 215-232.
    25. Serpil Canbaş & Serkan Yılmaz Kandır, 2009. "Investor Sentiment and Stock Returns: Evidence from Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(4), pages 36-52, July.
    26. Zhang, Wenlang & Semmler, Willi, 2009. "Prospect theory for stock markets: Empirical evidence with time-series data," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 835-849, December.
    27. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    28. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
    29. Fong, Wai Mun & Toh, Benjamin, 2014. "Investor sentiment and the MAX effect," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 190-201.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lin Liu & Kai Shi, 2017. "A Comparative Analysis on the Wealth Effect between in the Stock Market and in the Housing Market in China," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(11), pages 118-127, November.
    2. Cong Chen & Changsheng Hu & Hongxing Yao, 2022. "Noise Trader Risk and Wealth Effect: A Theoretical Framework," Mathematics, MDPI, vol. 10(20), pages 1-18, October.
    3. Liow, Kim Hiang & Huang, Yuting & Song, Jeonseop, 2019. "Relationship between the United States housing and stock markets: Some evidence from wavelet analysis," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    4. Lin, Wen-Yuan & Tsai, I-Chun, 2019. "Trader differences in Shanghai’s A-share and B-share markets: Effects on interaction with the Shanghai housing market," Journal of Asian Economics, Elsevier, vol. 64(C), pages 1-1.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tsai, I-Chun, 2015. "Dynamic information transfer in the United States housing and stock markets," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 215-230.
    2. Tsai, I-Chun, 2017. "Diffusion of optimistic and pessimistic investor sentiment: An empirical study of an emerging market," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 22-34.
    3. Maria I. Kyriakou & Athanasios Koulakiotis & Apostolos Kiohos & Vassilios Babalos, 2023. "Fractional Integration and Volatility Transmission Between Real Estate and Stock Markets: Novel Evidence from a FIGARCH-BEKK Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 66(4), pages 939-962, May.
    4. Ming-Chu Chiang & I-Chun Tsai, 2020. "Importance of Proper Monetary Liquidity: Sustainable Development of the Housing and Stock Markets," Sustainability, MDPI, vol. 12(21), pages 1-20, October.
    5. Korhan Gokmenoglu & Siamand Hesami, 2019. "Real estate prices and stock market in Germany: analysis based on hedonic price index," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 12(4), pages 687-707, April.
    6. Tsangyao Chang & Xiao-lin Li & Stephen M. Miller & Mehmet Balcilar & Rangan Gupta, 2013. "The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains," Working papers 2013-34, University of Connecticut, Department of Economics.
    7. Ming-Te Lee & Chyi Lin Lee & Ming-Long Lee & Chien-Ya Liao, 2017. "Price linkages between Australian housing and stock markets," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 10(2), pages 305-323, April.
    8. Lin, Wen-Yuan & Tsai, I-Chun, 2019. "Trader differences in Shanghai’s A-share and B-share markets: Effects on interaction with the Shanghai housing market," Journal of Asian Economics, Elsevier, vol. 64(C), pages 1-1.
    9. Li, Xiao-Lin & Chang, Tsangyao & Miller, Stephen M. & Balcilar, Mehmet & Gupta, Rangan, 2015. "The co-movement and causality between the U.S. housing and stock markets in the time and frequency domains," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 220-233.
    10. Dimitrios Gounopoulos & Kyriaki Kosmidou & Dimitrios Kousenidis & Victoria Patsika, 2019. "The investigation of the dynamic linkages between real estate market and stock market in Greece," The European Journal of Finance, Taylor & Francis Journals, vol. 25(7), pages 647-669, May.
    11. Di, Li & Shaiban, Mohammed Sharaf & Hasanov, Akram Shavkatovich, 2021. "The power of investor sentiment in explaining bank stock performance: Listed conventional vs. Islamic banks," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    12. Mei-Chen Lin, 2020. "When analysts encounter lottery-like stocks: lottery-like stocks and analyst stock recommendations," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 327-353, July.
    13. Chiang, Shu-hen & Chen, Chien-Fu, 2022. "From systematic to systemic risk among G7 members: Do the stock or real estate markets matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    14. Liow, Kim Hiang & Huang, Yuting & Song, Jeonseop, 2019. "Relationship between the United States housing and stock markets: Some evidence from wavelet analysis," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    15. Trofimov, Ivan D. & Md. Aris, Nazaria & C. D. Xuan, Dickson, 2018. "Macroeconomic and demographic determinants of residential property prices in Malaysia," MPRA Paper 85819, University Library of Munich, Germany.
    16. Goodness Aye & Mehmet Balcilar & Rangan Gupta, 2013. "Long- and Short-Run Relationships between House and Stock Prices in South Africa: A Nonparametric Approach," Journal of Housing Research, Taylor & Francis Journals, vol. 22(2), pages 203-219, January.
    17. Li, Jinfang, 2020. "The momentum and reversal effects of investor sentiment on stock prices," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    18. Koon Nam Henry Lee, 2017. "Residential property price-stock price nexus in Hong Kong: new evidence from ARDL bounds test," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 10(2), pages 204-220, April.
    19. Hou, Yang & Meng, Jiayin, 2018. "The momentum effect in the Chinese market and its relationship with the simultaneous and the lagged investor sentiment," MPRA Paper 94838, University Library of Munich, Germany.
    20. Lin, Chaonan & Chen, Hong-Yi & Ko, Kuan-Cheng & Yang, Nien-Tzu, 2021. "Time-dependent lottery preference and the cross-section of stock returns," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 272-294.

    More about this item

    Keywords

    Wealth effect; Investor sentiment; Optimistic sentiment; Capital switching; Markov-switching model;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:38:y:2016:i:c:p:111-123. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.