Macro to Micro: Country Exposures, Firm Fundamentals and Stock Returns

55 Pages Posted: 7 Mar 2012 Last revised: 24 Apr 2014

See all articles by Ningzhong Li

Ningzhong Li

University of Texas at Dallas

Scott A. Richardson

London Business School; Acadian Asset Management

A. Irem Tuna

London Business School

Date Written: April 24, 2014

Abstract

We outline a systematic approach to incorporate macroeconomic information into firm level forecasting from the perspective of an equity investor. Using a global sample of 198,315 firm-years over the 1998-2010 time period, we find that combining firm level exposures to countries (via geographic segment data) with forecasts of country level performance, is able to generate superior forecasts for firm fundamentals. This result is particularly evident for purely domestic firms. We further find that this forecasting benefit is associated with future excess stock returns. These relations are stronger after periods of higher dispersion in expected country level performance.

Keywords: macroeconomic exposures, earnings, stock returns, geographic segments, Consensus Economics

JEL Classification: G12, G14, M41

Suggested Citation

Li, Ningzhong and Richardson, Scott Anthony and Tuna, Ayse Irem, Macro to Micro: Country Exposures, Firm Fundamentals and Stock Returns (April 24, 2014). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2017091 or http://dx.doi.org/10.2139/ssrn.2017091

Ningzhong Li

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Scott Anthony Richardson (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

Ayse Irem Tuna

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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