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The effects of macroeconomic shocks on sector-specific returns

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  • Bradley Ewing
  • Shawn Forbes
  • James Payne

Abstract

The reliance on market and sector-specific indexes to evaluate managed portfolios and the popularity of index investing has increased the importance of understanding what leads to market movements, how long they may last, and how different sectors respond to macroeconomic shocks. This research is concerned with how shocks to macroeconomic variables affect five major S&P sector-specific stock market indexes. The paper employs the newly developed econometric technique of generalized impulse response analysis. The results identify the various responses of the sectors to unanticipated changes in some key macroeconomic variables. Asset prices are commonly believed to react sensitively to economic news. Daily experience seems to support the view that individual asset prices are influenced by a wide variety of unanticipated events and that some events have a more pervasive effect on asset prices than do others. (Chen et al. 1986, p. 386)

Suggested Citation

  • Bradley Ewing & Shawn Forbes & James Payne, 2003. "The effects of macroeconomic shocks on sector-specific returns," Applied Economics, Taylor & Francis Journals, vol. 35(2), pages 201-207.
  • Handle: RePEc:taf:applec:v:35:y:2003:i:2:p:201-207 DOI: 10.1080/0003684022000018222
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dunbar, Kwamie & Amin, Abu S., 2012. "Credit risk dynamics in response to changes in the federal funds target: The implication for firm short-term debt," Review of Financial Economics, Elsevier, pages 141-152.
    2. Malik, Farooq & Ewing, Bradley T., 2009. "Volatility transmission between oil prices and equity sector returns," International Review of Financial Analysis, Elsevier, vol. 18(3), pages 95-100, June.
    3. Vardhan, Harsh & Vij, Madhu & Sinha, Pankaj, 2013. "Insight of Indian sector indices for the post subprime crisis period: a vector error correction model approach," MPRA Paper 49962, University Library of Munich, Germany.
    4. Chi-Wei Su, 2012. "The relationship between exchange rate and macroeconomic variables in China," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 30(1), pages 33-56.
    5. Wang, Zijun & Kutan, Ali M. & Yang, Jian, 2005. "Information flows within and across sectors in Chinese stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(4-5), pages 767-780, September.
    6. Balli, Faruk & Balli, Hatice O., 2011. "Sectoral equity returns in the Euro region: Is there any room for reducing portfolio risk?," Journal of Economics and Business, Elsevier, pages 89-106.
    7. Bakri Abdul Karim, 2010. "Does trade matter for stock market integration?," Studies in Economics and Finance, Emerald Group Publishing, vol. 27(1), pages 47-66, March.
    8. Tsai, Chun-Li, 2011. "The reaction of stock returns to unexpected increases in the federal funds rate target," Journal of Economics and Business, Elsevier, pages 121-138.
    9. Mensi, Walid & Beljid, Makram & Boubaker, Adel & Managi, Shunsuke, 2013. "Correlations and volatility spillovers across commodity and stock markets: Linking energies, food, and gold," Economic Modelling, Elsevier, pages 15-22.
    10. Ahmed, Walid M.A., 2011. "Comovements and Causality of Sector Price Indices: Evidence from the Egyptian Stock Exchange," MPRA Paper 28127, University Library of Munich, Germany.
    11. repec:spt:apfiba:v:7:y:2017:i:5:f:7_5_5 is not listed on IDEAS
    12. Yu-Shao Liu & Chi-Wei Su, 2010. "The relationship between the real estate and stock markets of China: evidence from a nonlinear model," Applied Financial Economics, Taylor & Francis Journals, pages 1741-1749.
    13. Hassan, Syed Aun & Malik, Farooq, 2007. "Multivariate GARCH modeling of sector volatility transmission," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(3), pages 470-480, July.
    14. Díaz, Antonio & Jareño, Francisco, 2009. "Explanatory factors of the inflation news impact on stock returns by sector: The Spanish case," Research in International Business and Finance, Elsevier, pages 349-368.
    15. Su, Chi-Wei, 2011. "Non-linear causality between the stock and real estate markets of Western European countries: Evidence from rank tests," Economic Modelling, Elsevier, vol. 28(3), pages 845-851, May.

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