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

Author

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  • Fabio Panetta

    (Bank of Italy, Economic Research Department)

Abstract

This paper identifies the macroeconomic factors that influence Italian equity returns and tests the stability of their relation with securities returns. In the sixteen-year period that has been analyzed the relation between stock returns and the macroeconomic factors is found to be highly unstable: not only are the betas 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 empirical analysis of asset pricing should carefully investigate the specification of the return generating process and the stability of the risk measures.

Suggested Citation

  • Fabio Panetta, 2001. "The Stability of the Relation between the Stock Market and Macroeconomic Forces," Temi di discussione (Economic working papers) 393, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_393_01
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2001/2001-0393/tema_393.pdf
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    References listed on IDEAS

    as
    1. Giannetti, M., 2000. "Banking System, International Investors and Central Bank Policy in Everging Markets," Papers 369, Banca Italia - Servizio di Studi.
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    Cited by:

    1. Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2001. "Money demand in the euro area: do national differences matter?," Temi di discussione (Economic working papers) 405, Bank of Italy, Economic Research and International Relations Area.
    2. Ziliotto, Arianna & Serati, Massimiliano, 2015. "The semi-strong efficiency debate: In search of a new testing framework," Research in International Business and Finance, Elsevier, vol. 34(C), pages 412-438.

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    More about this item

    Keywords

    arbitrage pricing theory; return generating process; stock market factors; factor loadings;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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