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Macroeconomic FactorsDoInfluence Aggregate Stock Returns

Mark J. Flannery¹; Aris A. Protopapadakis^2,3

¹ University of Florida · ² California Southern University · ³ University of Southern California

Stock market returns are significantly correlated with inflation and money growth. The impact of real macroeconomic variables on aggregate equity returns has been difficult to establish, perhaps because their effects are neither linear nor time invariant. We estimate a GARCH model of daily equity returns, where realized returns and their conditional volatility depend on 17 macro series' announcements. We find six candidates for priced factors: three nominal (CPI, PPI, and a Monetary Aggregate) and three real (Balance of Trade, Employment Report, and Housing Starts). Popular measures of overall economic activity, such as Industrial Production or GNP are not represented.

DOI

10.1093/rfs/15.3.751

Volume

15 (3)

Pages

751-782

Language

en

Export

BibTeX

Sources

crossref openalex