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The link between macro-economic factors and style returns

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 (Online) (doi:10.1057/jam.2009.32)

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Abstract

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.

Item Type: Article
Uncontrolled Keywords: size premium, value premium, style investment, macro factors
Subjects: H Social Sciences > HB Economic Theory
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of Accounting & Finance
Related URLs:
Last Modified: 14 Oct 2016 09:22
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/8903

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