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Macroeconomic factors and equity returns in Borsa İstanbul

Yigit Atilgan, K.Özgür Demi̇rtaş and Alper Erdoğan
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K.Özgür Demi̇rtaş: Sabanci Universitesi
Alper Erdoğan: Sabancı Üniversitesi

Iktisat Isletme ve Finans, 2015, vol. 30, issue 349, 09-30

Abstract: This paper investigates equity return exposure to various macroeconomic factors and the performance of factor betas in predicting the cross-sectional variation in stock returns. We utilize a two-step procedure to directly test the implications of the Arbitrage Pricing Theory. First, we calculate monthly factor betas and then, we estimate the sensitivity of equity returns towards the factor betas. We find that (i) there exists a negative and significant relation between interest rate betas and future equity returns; (ii) the inclusion of market, book-to-market, size and momentum factor betas does not subsume the predictive power of the interest rate beta; and (iii) these results are driven by the debt-to-equity ratios of individual firms. We conclude that the sensitivity of returns towards interest rates which is driven by financial leverage is a priced risk factor in the Turkish stock market.

Keywords: Asset Pricing Models; Equity Returns; Arbitrage Pricing Theory; Macroeconomic Factors. (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2015
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