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How Does Volatility of Characteristics-sorted Portfolios Respond to Macroeconomic Volatility?

Author

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  • Ahmed Al Samman

    (Department of Economics, Faculty of Economics and Political Science, Cairo University, Egypt)

  • Mahmoud Moustafa Otaify

    (Department of Finance, College of Business & Economics, Misr University for Science & Technology, Egypt,
    Faculty of Economics & Political Science, Cairo University, Egypt)

Abstract

This paper investigates how volatility of characteristics-sorted portfolios respond to macroeconomic volatility based on Egyptian data covering the period July 2002-June 2015. The paper uses three characteristics, namely size, book-to-market ratio and financial leverage to sort the most active stocks into corresponding characteristics mimicking portfolios. We examine how volatility of single characteristic mimicking portfolios as well as double characteristics mimicking portfolios respond to volatility in macroeconomic variables. The results indicate that the money supply volatility is the dominant source of volatility for the characteristics-sorted portfolios, followed by the inflation volatility. Both investors and policy makers should consider the volatility of money more than the interest rate channel in rebalancing their portfolios and formulating policies. Arguably, the low-frequency volatility of many portfolios tend to decrease during periods of global financial crisis and political uncertainty post the Egyptian revolution in 2011.

Suggested Citation

  • Ahmed Al Samman & Mahmoud Moustafa Otaify, 2017. "How Does Volatility of Characteristics-sorted Portfolios Respond to Macroeconomic Volatility?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 300-315.
    • Handle: RePEc:eco:journ1:2017-04-39
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    Cited by:

    1. Mahmoud Otaify & Aly Dawood & Mohamed Farouk, 2022. "Optimal Cash Ratio and Adjustment Speed Across Different Firm Characteristics," International Journal of Economics and Financial Issues, Econjournals, vol. 12(3), pages 73-85, May.

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    More about this item

    Keywords

    Characteristics-sorted Portfolios; Macroeconomic Volatility; Spline-GARCH; Egyptian Exchange;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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