Correlation Between Stock Market Returns, Inflation, And...

Abstract There is a significant correlation between stock market returns, inflation, and money growth. The effects of macroeconomic variable on equity returns are nonlinear and time variant. This characteristic makes the study of these effects difficult. I estimate a GARCH model of monthly returns of SP500, where realized returns and their volatility depend on 11 macro announcements. The purpose of this paper is to see which macroeconomic factors affect aggregate stock returns most during 2008 financial crisis. Also, the effects of these factors before and after the crisis are compared. I find out †¦ Introduction Investigating firm’s key statistics such as sales, ROIC, and free cash flow may not be enough to evaluate the company’s performance and future. â€Å"Macroeconomic indicators seem like excellent candidates as proxies of latent economic state variables because they influence both changes in firms’ cash flows and the risk-adjusted discount rate† (Gosnell Nejadmalayeri, 2010). In fact, various economic indicators can strongly impact equity returns. However, it has been always difficult to establish this effect. Indeed, Chen, Roll, and Ross (1986) assessment of asset pricing is relevant today: â€Å"A rather embarrassing gap exists between the theoretically exclusive importance of systematic state variables and our complete ignorance of their identity. The comovements of asset prices suggest the presence of underlying exogenous influences, but we have not yet determinedShow MoreRelatedThe Determinant Factors Of Equity Return1513 Words   |  7 PagesThe det erminant factors of equity return in Indonesia Background Studies about determinant factors of equity return in each country is useful for global portfolio managers and global economic policy makers. Investors, in making profit, need to consider some risky aspects, to make speculation easier to be known, before investing in financial instruments in any country (Chandran et al. 2011, p.1). On the other hand, the government needs to attract capital inflow to support some development investmentsRead MoreInvestment Analysis Portfolio Management1583 Words   |  7 PagesFaculty School of Business North South University Dhaka Subject: Letter of transmittal Dear Mr. Saif Rahman Here is the term paper on investment analysis portfolio management from 31st may to 1st august. Now you will see that we have collected stock information and calculate relative things to evaluate our performance. We think that if anybody want to invest in the DSE , this term paper can help them to make decision whether or not they will invest or not and what strategy should they follow.Read MoreThe Battle for Capital of US Equities and Bond Yields1722 Words   |  7 Pagesknown as â€Å"Gibson’s Paradox.† Gibson’s Paradox originally referred to the positive relationship between interest rates and the general price level outlined by Alfred Gibson in The Banker magazine (1923). Gibson’s findings ran counter to the general prevailing views amongst economists, with the notable exception of John Maynard Keynes. Subsequent empirical work by Keynes showed no relationship between the level of interest rates and the rate of change in prices. The concept of Gibson’s Paradox hasRead MoreRelationship Between Gold, Oil and Us Stock Market1600 Words   |  7 Pagesempirical project I will try to explain the relationship between the oil prices, gold prices and stock market in the United State using yearly time series data. Since the gold and oil prices are raising their influence on stock market is also increasing and we will see how fluctuations in oil prices and gold prices impact the stock market in the United States. So here oil prices and gold prices will be our explanato ry variable and stock market index will be our explained variable. In this study weRead MoreQuestions On Arbitrage Pricing Theory1493 Words   |  6 Pagesability to explain security returns.† Arbitrage Pricing Theory 1. Introduction †¢ Brief background on the subject from the literature Ever since Ross (1976) proposed the arbitrage pricing theory (APT) as an alternative to the capital pricing model, many economists and investors have applied APT across different markets. Whereas the traditional capital pricing model explained asset returns with one parameter beta, sensitivity to the market return, APT decompose the return with multiple number of factorsRead MoreRisk And Return Analysis : Notes1158 Words   |  5 PagesRisk and Return Analysis Paige Riggs University of Phoenix Introduction There are various different financial products that one may choose to invest. Each financial product has its special features. Some of the investments have low risks and thus the return is also low. Others have high risks but offer you high potential returns. Returns are the gains or losses from security in a particular period and are usually quoted as a percentage (Carpenter, 2009). The kind of returns investorsRead MoreWhat Is Risk Parity?1921 Words   |  8 PagesWhat is risk parity? The biggest challenge investors face today is a low return environment. The returns on assets are low and the risks are high. In a traditional 60/40 portfolio almost all of the risk comes from equities. Equity risk accounts for 90% of the risk of the portfolio, which is significantly higher than its 60% weight. This creates a problem because volatility in the portfolio is now almost entirely dependent on what happens in equities, making the portfolio much less diverse than investorsRead MoreRelationship Between Risk And Rate Of Return Performance1416 Words   |  6 PagesThe relationship between risk and rate of return performance. The investors increase their required rates of return as the stocks increases. The security market line increases through the capital market. Some investors have all investments are risky preferences; some individuals will consider low-risk and high-risk investments. â€Å"Most of them only know how to invest long-term for growth because most of their financial advisors have only trained on how to develop assets or gather assets but haven’tRead MoreStatistical Analysis of 5 Microeconomics Variables4972 Words   |  20 Pagesrelationship between stock price movements and variations in macroeconomic aggregates. The paper examines the role of macroeconomic variables on Dhaka Stock Exchange (DSE) stock returns movement in Bangladesh. In this paper, the analysis is conducted by using monthly data for the period span from January 2009 to December 2012. All data are collected from Dhaka Stock Exchange, Internet. Five macroeconomic variables have been selected to assess the influence on stock return of Dhaka Stock Exchange. TheseRead MoreManaging Investment Growth Of A Diversified Portfolio1499 Words   |  6 Pagesâ€Æ' Managing Investment Growth In order to maximize a portfolio’s return, it is important to analyze risk and diversify securities, while adhering to the goals of an investor. Through analyzing the different classes of risk, one can match investments to an investor’s risk tolerance and return requirements. Even though some investments may present greater risk they are countered by a higher rate of return and vice versa, less risk corresponds to a lower return. Moreover, investment risk can be substantially