Do macroeconomic factors matter for stock returns? Evidence from estimating a multifactor model on the Croatian market
AbstractFactor models observe the sensitivity of an asset return as a function of one or more factors. This paper analyzes returns on fourteen stocks of the Croatian capital market in the period from January 2004 to October 2009 using inflation, industrial production, interest rates, market index and oil prices as factors. Both the direction and strength of the relation between the change in factors and returns are investigated. The analyses included fourteen stocks and their sensitivities to factors were estimated. The results show that the market index has the largest statistical significance for all stocks and a positive relation to returns. Interest rates, oil prices and industrial production also marked a positive relation to returns, while inflation had a negative influence. Furthermore, cross-sectional regression with the estimated sensitivities used as independent variables and returns in each month as dependent variables is performed. This analysis resulted in time series of risk premiums for each factor. The most important factor affecting stock prices proved to be the market index, which had a positive risk premium. A statistically significant factor in 2004 and 2008 was also inflation, marking a negative risk premium in 2004 and a positive one in 2008. The remaining three factors have not shown as significant.
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Bibliographic InfoPaper provided by Faculty of Economics and Business, University of Zagreb in its series EFZG Working Papers Series with number 1012.
Date of creation: 16 Dec 2010
Date of revision:
factor models; risk premium; stock returns; estimated sensitivities; regression analysis;
Other versions of this item:
- Dubravka Benakovic & Petra Posedel, 2010. "Do macroeconomic factors matter for stock returns? Evidence from estimating a multifactor model on the Croatian market," Business Systems Research, Society for Promotion of Business Information Technology (BIT), vol. 1(1-2), pages 39-46.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-23 (All new papers)
- NEP-RMG-2011-01-23 (Risk Management)
- NEP-TRA-2011-01-23 (Transition Economics)
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- Vesna Bucevska, 2013. "An Empirical Evaluation of GARCH Models in Value-at-Risk Estimation: Evidence from the Macedonian Stock Exchange," Business Systems Research, Society for Promotion of Business Information Technology (BIT), vol. 4(1), pages 49-64.
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