Economic forces and the stock market revisited |
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| Affiliation: | 1. Department of Accounting and Finance, University of North Carolina at Greensboro, Greensboro, NC 27412, USA;2. Department of Finance and SCM, Central Washington University, Ellensburg, WA 98926, USA;1. Hanken School of Economics, Department of Finance and Statistics, Arkadiankatu, 22, 00101 Helsinki, Finland;2. Durham University Business School, Mill Hill Lane, Durham DH1 3LB, UK;1. University of Chicago Booth School of Business, 5807 South Woodlawn Avenue, Chicago, IL 60637, United States;2. Arizona State University W.P. Carey School of Business, P.O. Box 873906, Tempe, AZ 85287, United States;1. CREATES and Department of Economics and Business, Aarhus University, Fuglesangs Allé 4, 8210 Aarhus, Denmark;2. Department of Economics and Business, Aarhus University, Fuglesangs Allé 4, 8210 Aarhus, Denmark;3. Department of Finance, Copenhagen Business School, Solbjerg Plads 3, 2000 Frederiksberg, Denmark |
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| Abstract: | The pricing of the Chen, Roll, and Ross (CRR) macrovariables is re-examined and found to be surprisingly sensitive to reasonable alternative procedures for generating size portfolio returns and estimating their betas. These methods include the full-period post-ranking return approach used in many recent studies. Strong evidence of pricing is obtained only for their industrial production growth factor and, in another contrast, for the VW market index. In particular, the corporate-government bond return spread, an important factor in CRR, is insignificantly negative for the 1958–1983 period, corroborating the cross-sectional regression results. |
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