An Augmented Macroeconomic Linear Factor Model of South African Industrial Sector Returns

Working Paper : WP2019/09/23

36 Pages Posted: 8 Oct 2020

See all articles by Jan Szczygielski

Jan Szczygielski

Department of Financial Management, University of Pretoria; Department of Accounting and Financial Management,Newcastle Business School, Northumbria University

Leon Brummer

affiliation not provided to SSRN

Hendrik Wolmarans

affiliation not provided to SSRN

Date Written: September 23, 19

Abstract

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

Suggested Citation

Szczygielski, Jan and Brummer, Lean and Wolmarans, Hendrik, An Augmented Macroeconomic Linear Factor Model of South African Industrial Sector Returns (September 23, 19). Working Paper : WP2019/09/23, Available at SSRN: https://ssrn.com/abstract=3677546 or http://dx.doi.org/10.2139/ssrn.3677546

Jan Szczygielski (Contact Author)

Department of Financial Management, University of Pretoria ( email )

Physical Address Economic and Management Sciences
Pretoria, Gauteng 0002
South Africa

Department of Accounting and Financial Management,Newcastle Business School, Northumbria University

Newcastle Upon Tyne
Newcastle Upon Tyne, NE1 8ST
United Kingdom

Lean Brummer

affiliation not provided to SSRN

Hendrik Wolmarans

affiliation not provided to SSRN

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