Resumo:
We show, using the consumer’s budget constraint, that the transitory deviation from the common trend in consumption, aggregate wealth and labour income, labelled as cay, forecasts not only the equity risk premium, but also housing returns. The evidence based on a panel of 31 emerging market economies indicates that, when investors expect higher stock returns, consumption temporarily rises above its equilibrium level. A similar response takes place when higher housing returns are expected and financial and housing assets are complements. In contrast, when these assets are substitutes, consumption is reduced. The empirical findings also suggest that the predictive ability of cay is high for Brazil, China, Colombia, Israel, Korea, Latvia, and Malaysia. As for housing risk premium, financial and housing assets are perceived as complements in the case of Chile, Russia, South Africa and Thailand and as substitutes in Argentina, Brazil, Hong Kong, Indonesia, Korea, Malaysia, Mexico and Taiwan.
