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Macroeconomic Factors Do Influence Aggregate Stock Returns

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  • Mark J. Flannery
  • Aris A. Protopapadakis

Abstract

Stock market returns are significantly correlated with inflation and money growth. The impact of real macroeconomic variables on aggregate equity returns has been difficult to establish, perhaps because their effects are neither linear nor time invariant. We estimate a GARCH model of daily equity returns, where realized returns and their conditional volatility depend on 17 macro series' announcements. We find six candidates for priced factors: three nominal (CPI, PPI, and a Monetary Aggregate) and three real (Balance of Trade, Employment Report, and Housing Starts). Popular measures of overall economic activity, such as Industrial Production or GNP are not represented. Copyright 2002, Oxford University Press.

Suggested Citation

  • Mark J. Flannery & Aris A. Protopapadakis, 2002. "Macroeconomic Factors Do Influence Aggregate Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 751-782.
    • Handle: RePEc:oup:rfinst:v:15:y:2002:i:3:p:751-782
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