Economic Forces and the Stock Market

1986/01/01 by Nai-Fu Chen, Nai‐Fu Chen, Richard Roll +1 · 31 citations
Economics, Econometrics and Finance · #Market Dynamics and Volatility #Financial Markets and Investment Strategies #Monetary Policy and Economic Impact

paper · doi:10.1086/296344

Abstract

This paper tests whether innovations in macroeconomic variables are risks that are rewarded in the stock market. Financial theory suggests that the following macroeconomic variables should systematically affect stock market returns: the spread between long and short interest rates, expected and unexpected inflation, industrial production, and the spread between high- and low-grade bonds. We find that these sources of risk are significantly priced. Furthermore, neither the market portfolio nor aggregate consumption are priced separately. We also find that oil price risk is not separately rewarded in the stock market.

Citations

• An Intertemporal Capital Asset Pricing Model

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