The link between macro-economic factors and style returns
Zhang, Qi J., Hopkins, Peter, Satchell, Stephen and Schwob, Robert (2009) The link between macro-economic factors and style returns. Journal of Asset Management, 10 (5). pp. 338-355. ISSN 1470-8272 (Print), 1479-179X (Electronic) (doi:10.1057/jam.2009.32)Full text not available from this repository.
Though the size premium and value premium have been well recognized, the risk-based explanations behind them have not yet been extensively exploited. This article examines the economic nature of the Fama-French size and book-to-price factors and establishes a significant link between the style factors and macro-economic state variables using two different approaches: (i) discrete state analysis, and (ii) threshold regression. The results from these two methods support the same conclusions. Firstly, value and small caps have performed best in periods of higher GDP growth; secondly, there exists a positive relationship between unexpected inflation and the value premium, and a negative relationship between unexpected inflation and the size premium; thirdly, value and smaller stocks perform better when short-term interest rates are low; finally, we find a positive relationship between the return premiums and the term spread.
|Uncontrolled Keywords:||size premium, value premium, style investment, macro factors|
|Subjects:||H Social Sciences > HB Economic Theory|
|School / Department / Research Groups:||School of Business|
School of Business > Department of Accounting & Finance
|Last Modified:||11 Dec 2012 13:52|
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