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Consumer confidence indices and stock markets' meltdowns

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  • Elena Ferrer
  • Julie Salaber
  • Anna Zalewska

Abstract

Consumer confidence indices (CCIs) are a closely monitored barometer of countries' economic health and an informative forecasting tool. Using European and US data, we provide a case study of the two recent stock market meltdowns (the post-dotcom bubble correction of 2000-2002 and the 2007-2009 decline at the beginning of the financial crisis) to contribute to the discussion on their appropriateness as proxies for stock markets' investor sentiment. Investor sentiment should positively covary with stock market movements [DeLong, Shleifer, Summers, and Waldmann. 1990. "Noise Trader Risk in Financial Markets." Journal of Political Economy 98 (4): 703-738]; however, we find that the CCI-stock market relationship is not universally positive. We also do not find support for the information effect documented in the previous literature, but identify a more subtle relationship between consumer expectations about future household finances and stock market fluctuations.

Suggested Citation

  • Elena Ferrer & Julie Salaber & Anna Zalewska, 2016. "Consumer confidence indices and stock markets' meltdowns," The European Journal of Finance, Taylor & Francis Journals, vol. 22(3), pages 195-220, February.
    • Handle: RePEc:taf:eurjfi:v:22:y:2016:i:3:p:195-220
    DOI: 10.1080/1351847X.2014.963634
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    Cited by:

    1. Neha SETH & Yogesh KUMAR, 2023. "Market mood index and stock market. Evidence from National Stock Exchange," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(634), S), pages 263-272, Spring.
    2. Raquel M. Gaspar & Xu Jiaming, 2023. "Consumer Confidence and Stock Markets' Returns," Working Papers REM 2023/0292, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    3. Elena Druică & Călin Vâlsan & Andreea-Ionela Puiu, 2022. "Voluntary Simplicity and Green Buying Behavior: An Extended Framework," Energies, MDPI, vol. 15(5), pages 1-17, March.
    4. Ung, Sze Nie & Gebka, Bartosz & Anderson, Robert D.J., 2023. "Is sentiment the solution to the risk–return puzzle? A (cautionary) note," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    5. Chen, Qi-An & Li, Huashi & Lin, Jianyi & Yan, Youliang, 2023. "Asset pricing with two types of heterogeneous consumption volatilities in mind: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    6. Salhin, Ahmed & Sherif, Mohamed & Jones, Edward, 2016. "Managerial sentiment, consumer confidence and sector returns," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 24-38.
    7. Albaity, Mohamed & Shah, Syed Faisal & Al-Tamimi, Hussein A.Hassan & Rahman, Mahfuzur & Thangavelu, Shanmugam, 2023. "Country risk and bank returns: Evidence from MENA countries," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    8. Zorio-Grima, Ana & Merello, Paloma, 2020. "Consumer confidence: Causality links with subjective and objective information sources," Technological Forecasting and Social Change, Elsevier, vol. 150(C).
    9. Zalewska, Anna (Ania) & Zhang, Yue, 2020. "Mutual funds' exits, financial crisis and Darwin," Journal of Corporate Finance, Elsevier, vol. 65(C).
    10. Dichtl, Hubert & Drobetz, Wolfgang & Otto, Tizian, 2023. "Forecasting Stock Market Crashes via Machine Learning," Journal of Financial Stability, Elsevier, vol. 65(C).

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