Macroeconomic Determinants of Cyclical Variations in Value, Size and Momentum Premium in the UK

28 Pages Posted: 6 Jul 2014

See all articles by G Sarwar

G Sarwar

University of Greenwich - Business School

Cesario Mateus

University of Roehampton

Natasa Todorovic

City University London - Sir John Cass Business School

Date Written: July 1, 2014

Abstract

The paper examines the asymmetries in size, value and momentum premium over the economic cycles in the UK and their macroeconomic determinants. Using Markov switching approach we find clear evidence of cyclical variations of the three premiums, most noticeably variations in size premium. We associate Markov switching regime 1 with economic upturn and regime 2 with economic downturn as per OECD’s Composite Leading Indicator. The macroeconomic indicators prompting such cyclicality the most are interest rates, term structure and credit spread. The role of GDP growth, money supply and inflation is less pronounced in our sample.

Keywords: Size, Value and Momentum premium, Markov Switching, Macroeconomic determinants

JEL Classification: G11, E32

Suggested Citation

Sarwar, Golam and Mateus, Cesario and Todorovic, Natasa, Macroeconomic Determinants of Cyclical Variations in Value, Size and Momentum Premium in the UK (July 1, 2014). Available at SSRN: https://ssrn.com/abstract=2462605 or http://dx.doi.org/10.2139/ssrn.2462605

Golam Sarwar

University of Greenwich - Business School ( email )

United Kingdom

Cesario Mateus (Contact Author)

University of Roehampton ( email )

Roehampton Lane
London, SW15 5PU
United Kingdom

Natasa Todorovic

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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