Macro variables and the components of stock returns

Paulo Maio and Dennis Philip

Journal of Empirical Finance, 2015, vol. 33, issue C, 287-308

Abstract: We conduct a decomposition for the stock market return by incorporating the information from 124 macro variables. Using factor analysis, we estimate six common factors and run a VAR containing these factors and financial variables such as the market dividend yield and the T-bill rate. Including the macro factors does not have a significant impact in the estimation of the components of aggregate (excess) stock returns—cash-flow, discount-rate, and interest-rate news. Using the macro factors in the computation of cash-flow and discount-rate news does not significantly improve the fit of a two-factor ICAPM for the cross-section of stock returns.

Keywords: Macroeconomy and stock returns; Return decomposition; Stock return predictability; Discount-rate news; Cash-flow news; Intertemporal CAPM (search for similar items in EconPapers)
JEL-codes: E44 G10 G12 G17 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:33:y:2015:i:c:p:287-308

DOI: 10.1016/j.jempfin.2015.03.004

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