The Stock Market Perception of Industry Risk Through the Utilization of a General Multifactor Model

International Journal of Transport Economics, February 2000, Vol. XXVII, No. 1, 77-98,

Posted: 18 Feb 2014

See all articles by Stelios Markoulis

Stelios Markoulis

University of Cyprus - Department of Public and Business Administration; Frederick University; Cyprus International Institute of Management (CIIM)

Manolis G. Kavussanos

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: February 1, 2000

Abstract

The aim of this paper is to apply a multifactor model to analyse the determinants of the risk-return relationship of US listed water transportation stocks and thereafter compare them with the corresponding determinants of other transport industries such as air transportation, rail transportation and trucks, and non-transport industries such as electricity, gas, petroleum refining and real estate over the period July 1985-June 1995. This analysis is done by estimating the sensitivities of a set of predetermined micro and macro economic factors to the cross-sectional differences in the returns of the companies in each industry. The set of the predetermined factors consists of micro and macro economic variables utilised in previous research and includes: the market value of equity (size); the book-to-market value of equity ratio; the earnings-to-price ratio; the asset-to-market value of equity ratio; and the asset-to-book value of equity ratio while the macro economic factors utilised are: industrial production; the term structure of interest rates; oil prices; consumption; and inflation. The relationship between the aforementioned factors and industry returns is established by employing the Seemingly Unrelated Regression Model (SURM). Important findings of this paper are: Firstly, micro and macro economic factors have a significant role to play in explaining the cross-section of industry stock returns. Secondly, the returns of different industries are explained by different sets of macro and micro economic factors.

Suggested Citation

Markoulis, Stelios and Kavussanos, Manolis G., The Stock Market Perception of Industry Risk Through the Utilization of a General Multifactor Model (February 1, 2000). International Journal of Transport Economics, February 2000, Vol. XXVII, No. 1, 77-98,. Available at SSRN: https://ssrn.com/abstract=1435271

Stelios Markoulis

University of Cyprus - Department of Public and Business Administration ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
CYPRUS

Frederick University ( email )

7, Y. Frederickou Str.
Pallouriotisa
Nicosia, 1036
Cyprus

Cyprus International Institute of Management (CIIM) ( email )

P.O Box 20378
Aglandjia
Nicosia, CY-2151
Cyprus

Manolis G. Kavussanos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission St
TK 104 34 Athens
Greece
0030 210 8203167 (Phone)
0030 210 8228816 (Fax)

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