The Determinants of Stock Returns in a Small Open Economy

31 Pages Posted: 6 May 2003

See all articles by Severine Cauchie

Severine Cauchie

University of Geneva - Geneva Finance Research Institute (GFRI)

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School

Dušan Isakov

University of Fribourg (Switzerland) - Faculty of Management, Economics and Social Sciences

Date Written: May 27, 2003

Abstract

This paper examines the determinants of stock returns in a small open economy using an APT framework. The analysis is conducted for the Swiss stock market which has the particularity of including a large proportion of firms that are exposed to foreign economic conditions. Both a statistical and a macroeconomic implementation of the model are performed for the period 1986-2002 with monthly returns on industrial sector indices. The results show that the statistically determined factors yield a better representation of the determinants of stock returns than the macroeconomic variables and that stock returns are influenced by both global and local economic conditions. This suggests that the Swiss stock market is an internationally imperfectly integrated market.

Keywords: Statistical APT; Macroeconomic APT; Market integration; Risk factors

Suggested Citation

Cauchie, Severine and Hoesli, Martin Edward Ralph and Isakov, Dušan, The Determinants of Stock Returns in a Small Open Economy (May 27, 2003). Available at SSRN: https://ssrn.com/abstract=391996 or http://dx.doi.org/10.2139/ssrn.391996

Severine Cauchie

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

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Geneva 4, Geneva 1211
Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute

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University of Aberdeen - Business School ( email )

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Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Dušan Isakov

University of Fribourg (Switzerland) - Faculty of Management, Economics and Social Sciences ( email )

Fribourg, CH 1700
Switzerland

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