IDEAS home Printed from https://ideas.repec.org/a/ahs/journl/v8y2023i3p404-424.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://dergipark.org.tr/tr/download/article-file/3148858
    Download Restriction: no
    File URL: https://libkey.io/10.30784/epfad.1298533?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. John Lintner, 1965. "Security Prices, Risk, And Maximal Gains From Diversification," Journal of Finance, American Finance Association, vol. 20(4), pages 587-615, December.
    2. 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.
    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)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bai, Jushan & Ando, Tomohiro, 2013. "Multifactor asset pricing with a large number of observable risk factors and unobservable common and group-specific factors," MPRA Paper 52785, University Library of Munich, Germany, revised Dec 2013.
    2. Richard T. Baillie & Fabio Calonaci & George Kapetanios, 2019. "Hierarchical Time Varying Estimation of a Multi Factor Asset Pricing Model," Working Papers 879, Queen Mary University of London, School of Economics and Finance.
    3. Fatemi, Ali M. & Tavakkol, Amir & Dukas, Stephen P., 1996. "Foreign exchange exposure and the pricing of exchange rate risk," Global Finance Journal, Elsevier, vol. 7(2), pages 169-189.
    4. Pat Wilson & John Okunev & Guy Ta, 1994. "Are Real Estate and Securities Markets Integrated? Some Australian Evidence," Working Paper Series 42, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    5. Kuwornu, John K.M., 2012. "Effect of Macroeconomic Variables on the Ghanaian Stock Market Returns: A Co-integration Analysis," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 4(2), pages 1-12, June.
    6. Ray Ball & Gil Sadka & Ayung Tseng, 2022. "Using accounting earnings and aggregate economic indicators to estimate firm-level systematic risk," Review of Accounting Studies, Springer, vol. 27(2), pages 607-646, June.
    7. Li Gu & Dayong Huang, 2013. "Consumption, Money, Intratemporal Substitution, And Cross-Sectional Asset Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(1), pages 115-146, January.
    8. Majeed, Raseena & Masih, Mansur, 2016. "Impact of macroeconomic variables on shariah stock markets: evidence from Malaysia based on ARDL approach," MPRA Paper 106118, University Library of Munich, Germany.
    9. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    10. Bai, Jushan & Ng, Serena, 2006. "Evaluating latent and observed factors in macroeconomics and finance," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 507-537.
    11. Thomas Conlon & John Cotter & Iason Kynigakis, 2021. "Machine Learning and Factor-Based Portfolio Optimization," Papers 2107.13866, arXiv.org.
    12. Nedumparambil, Elizabeth & Bhandari, Anup Kumar, 2020. "Credit risk – Return puzzle: Evidence from India," Economic Modelling, Elsevier, vol. 92(C), pages 195-206.
    13. Svetlana Bryzgalova & Jiantao Huang & Christian Julliard, 2023. "Bayesian Solutions for the Factor Zoo: We Just Ran Two Quadrillion Models," Journal of Finance, American Finance Association, vol. 78(1), pages 487-557, February.
    14. Randi Næs & Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2009. "What factors affect the Oslo Stock Exchange?," Working Paper 2009/24, Norges Bank.
    15. Hoover, Gary A. & Smimou, K., 2023. "Socially conscious investment funds and home country institutions," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 395-417.
    16. Avanidhar Subrahmanyam, 2010. "The Cross†Section of Expected Stock Returns: What Have We Learnt from the Past Twenty†Five Years of Research?," European Financial Management, European Financial Management Association, vol. 16(1), pages 27-42, January.
    17. Fernando Rubio, 2005. "Eficiencia De Mercado, Administracion De Carteras De Fondos Y Behavioural Finance," Finance 0503028, University Library of Munich, Germany, revised 23 Jul 2005.
    18. Chiang, Thomas C. & Li, Huimin & Zheng, Dazhi, 2015. "The intertemporal risk-return relationship: Evidence from international markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 156-180.
    19. Bryzgalova, Svetlana & Huang, Jiantao & Julliard, Christian, 2023. "Bayesian solutions for the factor zoo: we just ran two quadrillion models," LSE Research Online Documents on Economics 126151, London School of Economics and Political Science, LSE Library.
    20. Cesare Robotti, 2001. "The price of inflation and foreign exchange risk in international equity markets," FRB Atlanta Working Paper 2001-26, Federal Reserve Bank of Atlanta.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ahs:journl:v:8:y:2023:i:3:p:404-424. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ersan Ersoy (email available below). General contact details of provider: https://epfjournal.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.