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The Stock Market and the Consumer Confidence Channel in Canada

Author

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  • Lilia Karnizova

    (Department of Economics, University of Ottawa, Ottawa, ON)

  • Hashmat Khan

    (Department of Economics, Carleton University, Ottawa, Canada,)

Abstract

When stock prices rise, so does aggregate consumer spending. A traditional explanation for this phenomenon is based on wealth effects. However, movements of the stock market may affect consumer spending indirectly, by influencing consumer confidence. A bullish stock market may make consumers feel more optimistic about the future of the aggregate economy, and hence increase their spending. This paper investigates the existence of the consumer confidence channel of asset price transmission in Canada. The analysis is based on the indices of consumer confidence from the Conference Board of Canada and the Toronto Stock Exchange index. The results are supportive of the consumer confidence channel at the national level. There is also evidence of asymmetric effects of stock price changes on confidence changes: declines of the stock index have larger and statistically more significant effects relative to its increases.

Suggested Citation

  • Lilia Karnizova & Hashmat Khan, 2010. "The Stock Market and the Consumer Confidence Channel in Canada," Working Papers 1004E, University of Ottawa, Department of Economics.
    • Handle: RePEc:ott:wpaper:1004e
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    References listed on IDEAS

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    Cited by:

    1. Emrah İ. Çevik & Turhan Korkmaz & Erdal Atukeren, 2012. "Business confidence and stock returns in the USA: a time-varying Markov regime-switching model," Applied Financial Economics, Taylor & Francis Journals, vol. 22(4), pages 299-312, February.
    2. Kamini Solanki & Yudhvir Seetharam, 2014. "Is consumer confidence an indicator of JSE performance?," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 8(3), September.

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    More about this item

    Keywords

    Stock market; Consumer confidence; Wealth; Asymmetry.;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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