Sousa, Ricardo M. (2010) Collateralizable wealth, asset returns, and systemic risk: international evidence. In: Jawadi, Fredj and Barnett, William A., (eds.) Nonlinear Modeling of Economic and Financial Time-Series. International Symposia in Economic Theory and Econometrics (20). Emerald Group Publishing, Bingley, UK, pp. 1-27. ISBN 9780857244895
Full text not available from this repository.Abstract
Purpose – The purpose of this chapter is to assess the role of collateralizable wealth and systemic risk in explaining future asset returns. Methodology/approach – To test this hypothesis, the chapter uses the residuals of the trend relationship among housing wealth and labor income to predict both stock returns and government bond yields. Specifically, it shows that nonlinear deviations of housing wealth from its cointegrating relationship with labor income, hwy, forecast expected future returns. Findings – Using data for a set of industrialized countries, the chapter finds that when the housing wealth-to-income ratio falls, investors demand a higher risk premium for stocks. As for government bond returns: (i) when they are seen as a component of asset wealth, investors react in the same manner and (ii) if, however, investors perceive the increase in government bond returns as signaling a future rise in taxes or a deterioration of public finances, then they interpret the fall in the housing wealth-to-income ratio as a fall in future bond premia. Finally, this work shows that the occurrence of crisis episodes amplifies the transmission of housing market shocks to financial markets. Originality/value of chapter – These findings are novel. They also open new and challenging avenues for understanding the dynamics of the relationship between the housing sector, stock market and government bond developments, and the banking system.
| Item Type: | Book Section |
|---|---|
| Official URL: | http://www.emeraldinsight.com/ |
| Additional Information: | © 2010 Emerald Group Publishing Limited |
| Divisions: | Economics Financial Markets Group |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| Date Deposited: | 25 Apr 2014 10:53 |
| Last Modified: | 11 Dec 2024 17:28 |
| URI: | http://eprints.lse.ac.uk/id/eprint/56571 |
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