Do Macroeconomic Factors Subsume Market Anomalies in Long Investment Horizons?
40 Pages Posted: 9 Jun 2004
The main purpose of this study is to examine if macroeconomic variables could virtually subsume the size and BM anomalies for longer return intervals using Tokyo Stock Exchange-listed stocks. Most macroeconomic variables explain short-term returns within six months, with the industrial production as the only variable that persistently explains returns of all horizons ranging from one month to one year. Firm size does bear significant risk premium, but its significance diminishes for return intervals beyond three month when macroeconomic variables are included in the regression. BM is the only variable that significantly accounts for the cross-section of stock returns for all horizons, regardless of the inclusion of macroeconomic variables.
Keywords: investment horizon, beta, size, book-to-market equity, CAPM, macroeconomic factors
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