An Augmented Macroeconomic Linear Factor Model of South African Industrial Sector Returns
Working Paper : WP2019/09/23
36 Pages Posted: 8 Oct 2020
Date Written: September 23, 19
This study investigates the impact of the macroeconomic environment on South African industrial sector returns. Using standardized coefficients, we find that global influences are the most important drivers of returns and that industrial sectors are highly integrated with the global economy. We also find that specifications that comprise only macroeconomic factors and proxies for omitted factors in the form of residual market factors are likely to be under-specified. A factor analytic augmentation that accounts for omitted systematic factors can be incorporated to arrive at a specification that is free of omitted factors.
Keywords: macroeconomic factors, factor models, return generating process, global factors, time-series, standardized coefficients
JEL Classification: C01, C13, C32, C58, G12, G15
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