11 - The Stock Market and Consumer Confidence: European Evidence

Wetenschappelijke publicatie
Date 1 June 2002

This paper studies the (short-run) relationship between stock market developments and consumer confidence in eleven European countries over the years 1986-2001. We find that stock returns and changes in sentiment are positively correlated for nine countries, with Germany as the main exception. Moreover, stock returns generally Granger-cause consumer confidence at very short horizons (two weeks to one month), but not vice versa. The stock market-confidence relationship is driven by expectations about economy-wide conditions rather than personal finances. This suggests that the confidence channel is not part of the conventional wealth effect, but a separate transmission channel. Keywords: consumer confidence, stock market, wealth effect JEL Codes: G10, E21, D12