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MACRO‐ECONOMIC FACTORS AND STOCK RETURNS
Author(s) -
Kim Moon K.,
Wu Chunchi
Publication year - 1987
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1987.tb00481.x
Subject(s) - capital asset pricing model , risk–return spectrum , arbitrage pricing theory , economics , financial economics , arbitrage , investment theory , macro , investment performance , stock (firearms) , rate of return , investment (military) , return on investment , econometrics , production (economics) , finance , microeconomics , portfolio , mechanical engineering , politics , computer science , law , engineering , political science , programming language
This paper explores the economic nature of return factors by incorporating a multifactor return generating process into the traditional CAPM. It attempts to remedy the arbitrage pricing theory, which is not capable of assigning proper economic meanings to return factors. There are at least three significant factors associated with general production, investment, financial, and employment variables. These economic factors explain the risk‐return relationship as well as those obtained by the arbitrage pricing theory.