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Macroeconomic Expectations and the Size, Value, and Momentum Factors

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  • Mikael C. Bergbrant
  • Patrick J. Kelly

Abstract

One of the challenges facing the prior literature when examining the link between macroeconomic risks and the size (SMB), value (HML) and momentum (WML) factors is the difficulty of obtaining direct measures of macroeconomic expectations. We re-examine these relations using direct measures of investor expectations across 20 developed markets. While local and global market returns are robustly related to measures of economic activity, unlike the prior literature we find only a weak relation between HML and changes in expectations about macroeconomic activity. SMB and WML are either unrelated to or act as hedges against macroeconomic risk. This is inconsistent with HML, SMB and WML being priced because they proxy for macroeconomic risks. These findings are not the result of low power tests but rather from the fact that the individual portfolios, which make up the factors, have economically and statistically similar sensitivity to the macroeconomic risks we examine.
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Suggested Citation

  • Mikael C. Bergbrant & Patrick J. Kelly, 2016. "Macroeconomic Expectations and the Size, Value, and Momentum Factors," Financial Management, Financial Management Association International, vol. 45(4), pages 809-844, December.
    • Handle: RePEc:bla:finmgt:v:45:y:2016:i:4:p:809-844
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    File URL: http://hdl.handle.net/10.1111/fima.2016.45.issue-4
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    Cited by:

    1. Jessica Foo & Lek-Heng Lim & Ken Sze-Wai Wong, 2017. "Macroeconomics and FinTech: Uncovering Latent Macroeconomic Effects on Peer-to-Peer Lending," Papers 1710.11283, arXiv.org.
    2. Nurdina Nurdina & Nurkholis Nurkholis & Noval Adib & Sari Atmini, 2024. "Evaluation of the Resilience of Real Estate and Property Stocks to Inflation and Interest Rate Uncertainty: Implementation of Two Asset Pricing Models," JRFM, MDPI, vol. 17(12), pages 1-18, November.
    3. Robert A. Connolly & Chris Stivers & Licheng Sun, 2022. "Stock returns and inflation shocks in weaker economic times," Financial Management, Financial Management Association International, vol. 51(3), pages 827-867, September.
    4. Zhang, Ailian & Pan, Mengmeng & Zhang, Xuan, 2025. "The pricing ability of factor model based on machine learning: Evidence from high-frequency data in China," International Review of Economics & Finance, Elsevier, vol. 101(C).
    5. Nejla Bergaoui & Abdelwahed Trabelsi, 2016. "A State-Space Version of Fama and French’s Three-Factor Model: Evidence from the Tunisian Stock Exchange," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(11), pages 214-214, October.
    6. Köstlmeier, Siegfried, 2024. "Pricing and mispricing of accounting fundamentals: Global evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 94(C), pages 71-87.

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