Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
986088 | Review of Financial Economics | 2008 | 17 Pages |
Abstract
Changes in the risk structure of stock returns may sometimes be very revealing. We examine economic variables that help explain principal components in UK stock returns, 01/1985 to 12/2001. The loading pattern on explanatory variables for the first component in a ‘bubble’ period is distinctive and consistent with a bubble/crash market. The second component shows a loading pattern on a Consumer Confidence variable in a pre-bubble period only. We observe apparently systematic changes in the structure of risk, and conjecture that Consumer Confidence captures a change in market sentiment that could be a signal for the evolution of stock prices.
Related Topics
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Authors
Lawrence Leger, Vitor Leone,