Premium
MACROECONOMIC VARIABLES AND SEASONAL MEAN REVERSION IN STOCK RETURNS
Author(s) -
Gangopadhyay Partha
Publication year - 1996
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.1475-6803.1996.tb00221.x
Subject(s) - mean reversion , economics , excess return , risk premium , portfolio , stock (firearms) , econometrics , bond , financial economics , capital asset pricing model , stock market , finance , mechanical engineering , paleontology , context (archaeology) , horse , engineering , biology
In this paper I investigate whether seasonal mean reversion in stock portfolio returns is related to common macroeconomic risk factors. I decompose excess returns into explained and unexplained returns using a multifactor pricing model. The explained excess returns exhibit January mean reversion; the unexplained excess returns do not. The mean reversion can be attributed to the components of return related to unexpected inflation, bond default premium, and market risk. The results do not depend on the time‐series properties of the portfolio betas. Bond default premia and excess market returns are mean reverting in January.