Economic Forces and the Stock Market pdf download.
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.
Asset prices are commonly believed to react sensitively toeconomic news.Daily experience seems to support the view that individual assetprices are influenced by a wide variety ofunanticipated events and that some events havea more pervasive effect on asset prices than doothers.Consistent with the ability of investors todiversify,modern financial theory has focusedon pervasive,or “systematic,”influences as the likely source of investment risk.The general conclusion of theory is that an additional component of long-run return is required and obtainedwhenever a particular asset is influenced by systematic economic news and that no extra rewardcan be earned by (needlessly) bearing diversifiable risk.
Economic Forces and the Stock Market pdf download
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