Do macroeconomic factors matter for stock returns? Evidence from estimating a multifactor model on the Croatian market

• Authors: Dubravka Benaković , Petra Posedel
• Languages of publication: EN

Abstracts

EN

Factor models observe the sensitivity of an asset return as a function of one or more factors. This paper analyzes returns on fourteen stocks of the Croatian capital market in the period from January 2004 to October 2009 using inflation, industrial production, interest rates, market index and oil prices as factors. Both the direction and strength of the relation between the change in factors and returns are investigated. The analyses included fourteen stocks and their sensitivities to factors were estimated. The results show that the market index has the largest statistical significance for all stocks and a positive relation to returns. Interest rates, oil prices and industrial production also marked a positive relation to returns, while inflation had a negative influence. Furthermore, cross-sectional regression with the estimated sensitivities used as independent variables and returns in each month as dependent variables is performed. This analysis resulted in time series of risk premiums for each factor. The most important factor affecting stock prices proved to be the market index, which had a positive risk premium. A statistically significant factor in 2004 and 2008 was also inflation, marking a negative risk premium in 2004 and a positive one in 2008. The remaining three factors have not shown as significant.

Keywords

EN

Factor models; risk premium; stock returns; estimated sensitivities; regression analysis

• Publisher: Sciendo
• Journal: Business Systems Research Journal
• Year: 2010
• Volume: 1
• Issue: 1-2
• Pages: 39-46

Dates

published

2010-01-01

online

2012-09-19

Contributors

author

Dubravka Benaković

• Ministry of Finance of the Republic of Croatia, Katančićeva 5, 10000 Zagreb, Croatia

author

Petra Posedel

• Faculty of Economics & Business, University of Zagreb, Trg J. F. Kennedyja 6, 10000 Zagreb, Croatia

References

• Bodurtha, J. N., Cho, D. C., Senbet, L. W. (1989). Economic Forces and the Stock Market: An international Perspective. The Global Finance Journal, 1(1), 21-46.
• Campbell, J., Lo, A., MacKinlay, A. (1997). The Econometrics of Financial Markets, Princeton University Press, Princeton, New Jersey
• Chan, K. C., Chen, N. F., Hsieh, D. A. (1985). An Exploratory Investigation of the Firm Size Effect. Journal of Financial Economics, 14, 451-471.[Crossref]
• Chen, N., Roll, R., Ross, S. A. (1986). Economic Forces and the Stock Market. The Journal of Business, 59(3), 383-403.[Crossref]
• Fama, E. F., French, K. R. (1992). The Cross-Section of Expected Stock Returns. The Journal of Finance, 47 (2), 427-465.[Crossref]
• Hördahl, P. (2008). The Inflation Risk Premium in the Term Structure of Interest Rates. BIS Quarterly Review
• Ivanović, Z. (2000). Faktorski modeli u funkciji procjene prihoda vrijednosnica. Ekonomski pregled, 51 (9-10), 987-1005.
• McElroy, M. B., Burmeister, E. (1988). Arbitrage Pricing Theory as a Restricted Nonlinear Multivariate Regression Model: Iterated Nonlinear Seemingly Unrelated Regression Estimates. Journal of Business & Economic Statistics, 6(1), 29-42.
• Ross, S. (1976). The arbitrage theory of capital asset pricing. Journal of Economic Theory, 13 (3), 341-360.[Crossref]

Identifiers

DOI

10.2478/v10305-012-0023-z