Do Macroeconomic Factors Subsume Market Anomalies in Long Investment Horizons?

40 Pages Posted: 9 Jun 2004

See all articles by Pin-Huang Chou

Pin-Huang Chou

National Central University

Wen-Shen Li

National Central University at Taiwan - Department of Finance

S. Ghon Rhee

University of Hawaii - Shidler College of Business; University of Hawaii - Department of Financial Economics and Institutions

Jane-Sue Wang

Ming Chuan University - Department of Economics

Abstract

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

Suggested Citation

Chou, Pin-Huang and Li, Wen-Shen and Rhee, S. Ghon and Wang, Jane-Sue, Do Macroeconomic Factors Subsume Market Anomalies in Long Investment Horizons?. EFMA 2004 Basel Meetings Paper. Available at SSRN: https://ssrn.com/abstract=497584 or http://dx.doi.org/10.2139/ssrn.497584

Pin-Huang Chou (Contact Author)

National Central University ( email )

Department of Finance
Taoyuan, 32054
Taiwan
886-3-4227151 ext 6270 (Phone)
886-3-4252961 (Fax)

Wen-Shen Li

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan

S. Ghon Rhee

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii - Department of Financial Economics and Institutions ( email )

United States

Jane-Sue Wang

Ming Chuan University - Department of Economics ( email )

5 De Ming Rd.
Gui Shan, Taoyuan County 328
Taiwan

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