Macro variables and the components of stock returns

Maio, P.; Philip, D.

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.

Citation

Maio, P., & Philip, D. (2015). Macro variables and the components of stock returns. Journal of Empirical Finance, 33, 287-308. https://doi.org/10.1016/j.jempfin.2015.03.004

• Journal Article Type: Article
• Acceptance Date: Mar 16, 2015
• Online Publication Date: Mar 27, 2015
• Publication Date: Sep 1, 2015
• Deposit Date: Mar 16, 2015
• Publicly Available Date: Aug 27, 2016
• Journal: Journal of Empirical Finance
• Print ISSN: 0927-5398
• Electronic ISSN: 1879-1727
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 33
• Pages: 287-308
• DOI: https://doi.org/10.1016/j.jempfin.2015.03.004
• Keywords: Asset pricing, Macroeconomy and stock returns, Return decomposition, Stock return predictability, Discount-rate news, Cash-flow news, Intertemporal CAPM, Cross-section of stock returns, Factor analysis.
• Public URL: https://durham-repository.worktribe.com/output/1411245