Forecasting Individual Stock Returns Using Macroeconomic and Technical Variables

37 Pages Posted: 13 Mar 2019 Last revised: 25 Mar 2020

See all articles by Hui Zeng

Hui Zeng

Massey University - Department of Economics and Finance

Ben R. Marshall

Massey University - School of Economics and Finance

Nhut H. Nguyen

Auckland University of Technology

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: July 25, 2017

Abstract

We show that the previously documented predictability of macroeconomic and technical variables for market returns is also evident in individual stock returns. Technical variables generate better predictability on firms with higher limits to arbitrage (smaller, illiquid, volatile firms), while macroeconomic variables better predict firms with lower limits to arbitrage. Technical predictors show stronger predictive power for high limits to arbitrage firms across the business cycle, whereas macroeconomic variables capture more predictive information for firms with low limits to arbitrage during recessions.

Keywords: firm level predictability, macroeconomic and technical predictors, principal component analysis (PCA), limits to arbitrage, cross-sectional predictability, business cycle

JEL Classification: G10

Suggested Citation

Zeng, Hui and Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Forecasting Individual Stock Returns Using Macroeconomic and Technical Variables (July 25, 2017). Available at SSRN: https://ssrn.com/abstract=3339603 or http://dx.doi.org/10.2139/ssrn.3339603

Hui Zeng (Contact Author)

Massey University - Department of Economics and Finance ( email )

Private Bag 102904
North Shore Mail Centre
Auckland, 0745
New Zealand
64 2 041 496226 (Phone)

Ben R. Marshall

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand
64 6 350 5799 (Phone)
64 6 350 5651 (Fax)

Nhut H. Nguyen

Auckland University of Technology ( email )

55 Wellesley St East
Auckland, Auckland 1010
New Zealand
+64 9 921 9999 (Phone)

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
139
Abstract Views
1,228
rank
229,610
PlumX Metrics