The Effect of Consumer Expectations on Portfolio Asset Allocation

Anoruo, Emmanuel; Bajtelsmit, Vickie L.; Ramchander, Sanjay; Simpson, Marc W.
September 2003
Journal of Financial Planning;Sep2003, Vol. 16 Issue 9, p64
Academic Journal
This article focuses on a study which examined the effect of various measures of consumer economic expectations on individual investment allocation to stocks, bonds and cash. Two strands of previous research are relevant to this study. The first includes papers that consider the usefulness of consumer attitudes in predicting macroeconomic and financial variables, and the second area of research examines factors that influence portfolio allocation. Under the first strand of research, consumer attitudes and expectations frequently have been cited in the trade press as an important predictor of future economic activity. Consistent with theory, policymakers and forecasters attribute the predictive content of consumer confidence to its close relationship to future consumption, savings and income. Two examples that have been frequently given as anecdotal support for this dependent relationship are the time periods preceding the 1990-1991 recession and the September 11, 2001, terrorist attacks on the World Trade Center and the Pentagon. In the three months following the Iraqi invasion of Kuwait in August 1990, the University of Michigan's Consumer Sentiment Index fell an unprecedented 24.3 points to its lowest level since the previous recession of 1981-1982.


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