Macroeconomic Factors DO Influence Aggregate Stock Returns

49 Pages Posted: 3 Oct 2002  

Mark J. Flannery

University of Florida - Department of Finance, Insurance and Real Estate

Aris Protopapadakis

University of Southern California - Marshall School of Business - Finance and Business Economics Department

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Abstract

Stock market returns are known to be 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, in which realized returns and their conditional volatility depend on seventeen macro series' announcements. We find six candidates for priced factors: three nominal (CPI, PPI, and a Monetary Aggregate) and three real (the Balance of Trade, the Employment Report, and Housing Starts).

Notably absent from this list are popular measures of overall economic activity, such as Industrial Production or GNP.

Keywords: stock returns, factor, macroeconomics

JEL Classification: G12, G14

Suggested Citation

Flannery , Mark J. and Protopapadakis, Aris, Macroeconomic Factors DO Influence Aggregate Stock Returns. Available at SSRN: https://ssrn.com/abstract=314261 or http://dx.doi.org/10.2139/ssrn.314261

Mark Jeffrey Flannery (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

Aris Protopapadakis

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6537 (Phone)
213-740-6650 (Fax)

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