Macro variables and the components of stock returns

Maio, P.; Philip, D.

doi:10.1016/j.jempfin.2015.03.004

Macro variables and the components of stock returns

Maio, P.; Philip, D.

Authors

P. Maio

Professor Dennis Philip dennis.philip@durham.ac.uk
Professor

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
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

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Copyright Statement
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Empirical Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Empirical Finance, 33, September 2015, 10.1016/j.jempfin.2015.03.004.