Real aggregate activity and stock returns

Ding Du, Karen Denning and Xiaobing Zhao

Journal of Economics and Business, 2012, vol. 64, issue 5, 323-337

Abstract: The notion that real aggregate activity exerts important influence on stock returns has strong theoretical appeal but weak empirical support. We argue in this paper that the lack of empirical reaction to macro news might be at least partly due to the usual focus on macro variables, which are noisy measures of real aggregate activity or the common factor. To test our conjecture, we focus on the Chicago Fed National Activity Index (CFNAI-MA3), a single summary measure of the common factor in 85 macro variables. Our main finding is that the news component of this index does affect stock returns. The effects show up at the market level as well as at the portfolio level. The effects are not only statistically but also economically significant.

Keywords: Real aggregate activity; Chicago Fed National Activity Index; Stock returns (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:64:y:2012:i:5:p:323-337

DOI: 10.1016/j.jeconbus.2012.06.002

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