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The Effects of Common Macroeconomics Factors on U.S. Stock Returns

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  • Serkan Şengül

Abstract

In this study, the explanatory power of the macro variables in relation to the variation of stock returns has been discussed in terms of the economy of the USA. To make an analysis on the cross section of the stock returns, 131 Macroeconomic variables between 1964 and 2007 have been put into use. Summing up the information in 131 monthly series, dynamic factor analysis is used to take out 8 potential factors. So that the pragmatic presentation of the factor model can be measured, Fama-Macbeth’s test procedure of two phases is applied. In addition to the variables included in the literature such as market risk factor, size factor, value factor and momentum factors, it is found out that the macro factors are highly influential on the explanation of the common variation in U.S stock returns. The tests stated above have been performed by the means of Fama French 49 industry portfolios, apart from Fama French 100 portfolios that have been formed on size and book. Furthermore, the factor model is established and intended for the certain periods of boom and recession. The relations established between latent factors and stock returns appear to be unimportant during the downturn periods.

Suggested Citation

  • Serkan Şengül, 2023. "The Effects of Common Macroeconomics Factors on U.S. Stock Returns," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 8(3), pages 404-424.
    • Handle: RePEc:ahs:journl:v:8:y:2023:i:3:p:404-424
    DOI: 10.30784/epfad.1298533
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    References listed on IDEAS

    as
    1. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    2. John Lintner, 1965. "Security Prices, Risk, And Maximal Gains From Diversification," Journal of Finance, American Finance Association, vol. 20(4), pages 587-615, December.
    3. Erdinc Altay, 2003. "The Effect of Macroeconomic Factors on Asset Returns: A Comparative Analysis of the German and the Turkish Stock Markets in an APT Framework," Finance 0307006, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stock Return; Fama French; CAPM; Macroeconomic Factors; Principal Component Analysis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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