The current account and stock returns

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

In this paper, I use stock return data to test an intertemporal model of the current account. I find that the model performs well in three countries: the U.K., Canada, and Japan. Hall [Hall, R.E., 1978. Stochastic implication of the life cycle-permanent income hypothesis: theory and evidence. J. Polit. Econ. 86 (6), 971-987] points out that because stock price predicts the future state of the economy, it predicts consumption. Assuming that consumption depends on permanent income, my empirical finding indicates that a representative agent smoothes consumption based on stock market information. In other words, stock market returns yield information about permanent income.

Original languageEnglish
Pages (from-to)302-321
Number of pages20
JournalResearch in International Business and Finance
Volume23
Issue number3
DOIs
Publication statusPublished - 2009 Sep 1

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Keywords

  • Current account
  • Permanent income
  • Stock return

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Finance

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