 The decomposition of US and Euro area stock and bond returns and their sensitivity to economic state variablesNico Valckx () The European Journal of Finance, 2004, vol. 10, issue 2, 149-173 Abstract: This paper decomposes US and Euro area excess stock and bond return innovations into news factors using the Campbell-Schiller methodology. The results indicate that stock return volatility is mostly due to volatility of future excess return news. Inflation news plays a minor role although it is significantly correlated with excess return innovations. For the bond market too, it is future return news—not inflation news—that moves bond returns most. For finite investment horizons, however, asset market movements give a differential importance to the various news components. Results are comparable for the US and the Euro area, but differ in terms of magnitudes. In addition, sensitivities ('betas') to a set of state variables are estimated, yielding high interest rate betas and low money growth betas. Generally, inflation, unemployment and leading indicator betas are significant. Asset market exposures to oil and exchange rate changes are more significant for the Euro area than in the US. Keywords: equity premium; term premium; dynamic Gordon model; variance decomposition; asset pricing factor sensitivities (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:10:y:2004:i:2:p:149-173 Ordering information: This journal article can be ordered from DOI: 10.1080/1351847032000137393 Access Statistics for this article The European Journal of Finance is currently edited by Chris Adcock More articles in The European Journal of Finance from Taylor & Francis Journals |
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