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Changes in the risk structure of stock returns: Consumer Confidence and the dotcom bubble

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  • Lawrence Leger
  • Vitor Leone

Abstract

Changes in the risk structure of stock returns may sometimes be very revealing. We examine economic variables that help explain principal components in UK stock returns, 01/1985 to 12/2001. The loading pattern on explanatory variables for the first component in a ‘bubble’ period is distinctive and consistent with a bubble/crash market. The second component shows a loading pattern on a Consumer Confidence variable in a pre‐bubble period only. We observe apparently systematic changes in the structure of risk, and conjecture that Consumer Confidence captures a change in market sentiment that could be a signal for the evolution of stock prices.

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  • Lawrence Leger & Vitor Leone, 2008. "Changes in the risk structure of stock returns: Consumer Confidence and the dotcom bubble," Review of Financial Economics, John Wiley & Sons, vol. 17(3), pages 228-244, August.
    • Handle: RePEc:wly:revfec:v:17:y:2008:i:3:p:228-244
    DOI: 10.1016/j.rfe.2007.08.001
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    Cited by:

    1. Vitor Leone, 2011. "From Property Companies to Real Estate Investment Trusts: The Impact of Economic and Property Factors on UK Listed Property Returns," Economic Issues Journal Articles, Economic Issues, vol. 16(1), pages 19-36, March.
    2. Jasman Tuyon & Zamri Ahmada, 2016. "Behavioural finance perspectives on Malaysian stock market efficiency," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(1), pages 43-61, March.
    3. Morris, John J. & Alam, Pervaiz, 2012. "Value relevance and the dot-com bubble of the 1990s," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 243-255.
    4. Zhang, Li & Liu, Chengyi & Zhang, Jinjin & Ke, Jinjun & Yuan, Jiayue, 2023. "Party leadership, corporate governance and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 88(C).
    5. Vitor Leone, 2010. "From Property Companies to Real Estate Investment Trusts: The Impact of Economic and Property Factors in the UK Commercial Property Returns," NBS Discussion Papers in Economics 2010/4, Economics, Nottingham Business School, Nottingham Trent University.

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