On the relationship between changes in consumer confidence and stock market returns: a global analysis

ABSTRACT This study provides new insights on the relationship between changes in global consumer confidence indexes and the performance of stock markets in China, Europe, and USA from 2007 to 2021. Besides the full sample we also look into the pre-pandemic and pandemic subperiods. Using contemporaneous correlation and Granger causality tests from the full-time period and pre-pandemic sub-period, generally, we find that the stock market returns are positively correlated with changes in consumer confidence indexes. There are significant two-way Granger causal impacts between the two variables in Europe and the United States. For the Chinese stock market, we find that changes in consumer confidence indexes worldwide can Granger cause Chinese stock returns, but not vice versa. Chinese stock returns only assist to predict changes in East Asian consumer confidence index. For the Covid pandemic sub-period, we find some negative correlations between stock market returns and changes in consumer confidence indexes. For the Chinese stock markets this more evident than for European or United States stock markets. Even so, the returns of the Health Care sector in the United States and Europe alter to be negatively connected with changes in consumer confidence indexes all over the world. Concerning Granger causality results, we find the impact from the stock market returns to the changes in consumer confidence indexes to be stronger during the pandemic sub-period. On the other hand, the causality running from changes in consumer confidence indexes to stock market returns reduced in terms of the number of significant outcomes.