Publication details for Professor Dennis PhilipMaio, P. & Philip, D. (2015). Macro variables and the components of stock returns. Journal of Empirical Finance 33: 287-308.
- Publication type: Journal Article
- ISSN/ISBN: 0927-5398
- DOI: 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.
- Further publication details on publisher web site
- Durham Research Online (DRO) - may include full text
Author(s) from Durham
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.