Expected stock returns, aggregate consumption and wealth: Some further empirical evidence

Following the methodology suggested by (Lettau, M., Ludvigson, S., 2001. Consumption, aggregate wealth and expected stock returns, Journal of Finance 2, 815-849). We test whether the cointegrating residual, implied by a wide class of optimal consumption models has explanatory power for short-horizon real equity returns in three countries: Australia, Canada and the United Kingdom in the post-war period.