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The Stability of the Relation Between the Stock Market and Macroeconomic Forces

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  • Fabio Panetta

Abstract

type="main" xml:lang="en"> This paper identifies the macroeconomic factors that influence Italian equity returns and tests the stability of their relation with securities returns. The relation between stock returns and the macroeconomic factors is found to be unstable: not only are the factor loadings of individual securities virtually uncorrelated over time, but a high percentage of the shares experience a reversal of the sign of the estimated loadings. This result is not confined to single periods or to a small group of shares, but holds in different sub–periods and for securities in all risk classes. These findings suggest that research should carefully investigate the specification of the return generating process and the stability of the risk measures. (J.E.L.: G12, E44).

Suggested Citation

  • Fabio Panetta, 2002. "The Stability of the Relation Between the Stock Market and Macroeconomic Forces," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 31(3), pages 417-450, November.
  • Handle: RePEc:bla:ecnote:v:31:y:2002:i:3:p:417-450
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    File URL: http://hdl.handle.net/10.1111/1468-0300.00093
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    Cited by:

    1. Hassan, Gazi & Hisham, Al refai, 2010. "Can Macroeconomic Factors Explain Equity Returns in the Long Run? The Case of Jordan," MPRA Paper 22713, University Library of Munich, Germany.
    2. Paola Brighi & Stefano d'Addona & Antonio Carlo Francesco Della Bina, 2010. "Too Small or too Low? New Evidence on the 4-Factor Model," Working Paper series 31_10, Rimini Centre for Economic Analysis.
    3. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies: a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland Institute for Emerging Economies (BOFIT).
    4. Christopher A. Hartwell, 2014. "Do (successful) stock exchanges support or hinder institutions in transition economies?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-18, December.
    5. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies : a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland, Institute for Economies in Transition.
    6. PAOLA BRIGHI & STEFANO d'ADDONA & ANTONIO CARLO FRANCESCO DELLA BINA, 2013. "The Determinants of Risk Premia on the Italian Stock Market: Empirical Evidence on Common Factors in Asset Pricing Models," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 42(2), pages 103-133, July.
    7. repec:zbw:bofitp:2014_006 is not listed on IDEAS
    8. Ariel Lanza & Enrico Bernardini & Ivan Faiella, 2020. "Mind the gap! Machine learning, ESG metrics and sustainable investment," Questioni di Economia e Finanza (Occasional Papers) 561, Bank of Italy, Economic Research and International Relations Area.
    9. Massimo Caruso, 2006. "Stock market fluctuations and money demand in Italy, 1913-2003," Temi di discussione (Economic working papers) 576, Bank of Italy, Economic Research and International Relations Area.
    10. Andreas Andrikopoulos & Aristeidis Samitas & Konstantinos Kougepsakis, 2014. "Volatility transmission across currencies and stock markets: GIIPS in crisis," Applied Financial Economics, Taylor & Francis Journals, vol. 24(19), pages 1261-1283, October.
    11. Jörg Döpke & Karsten Müller & Lars Tegtmeier, 2023. "Moments of cross‐sectional stock market returns and the German business cycle," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 52(2), July.
    12. Anna Pirogova & Antonio Roma, 2020. "Performance of value‐ and size‐based strategies in the Italian stock market," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 49(1), February.

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