Abstract
Given that stock markets may act as an economy mirror, it is explored the sensitivity of company-sector-specific stock returns to macroeconomic news reflecting different economic environments for the UK, US, Germany, Japan and Australian markets between March 1993 and February 2013 using monthly data. Results seem to indicate that portfolio investors need to be aware that movements in the market index is the best predictor to forecast stock returns of individual companies and sectors in developed economies. Sentiment influences individual company’s returns of the utilities sector, even if these are considered of limited growth and stable earnings, for UK, USA and Australia, turning investor confidence a relevant variable to be included. Information increases about industrial production have no influence on company and sector stocks, thus not affecting investor’s decision in developed countries. As for Japan, results seem to indicate that the higher the need of oil imports of a country, the higher will be the positive impact of oil price changes over company returns. Finally, the riskless interest rate has no effect on sector stock returns independently of the country under analysis. For developed economies, we confirm the finding that stocks cannot be used as a hedge against inflation.
Highlights
Companies need to survive and gain competitive advantage in a volatile global environment
To consider all the variables under analysis we have performed more than 300 multiple regressions, being stock returns the dependent variable while the macroeconomic variables described above are the independent ones
Results are interpreted as the monthly change in the stock or index sector stock return when a particular macroeconomic factor changes by one percentage point keeping all other variables constant
Summary
Companies need to survive and gain competitive advantage in a volatile global environment. Managers need to understand the drivers of organizational performance, or else, individual risk, as well as the drivers of macroeconomic performance, or their market risk. Internal growth and success are reflected on stock market quotes which explain investors’ behaviors. Company growth is due to internal factors, it depends on general macroeconomic conditions. This impacts investor’s decision of investment, determining the future company performance. Macroeconomic variables and their effects on stock returns are interesting for scholars, investors, policy makers and corporate managers, given that the overall economy affects business by disturbing the smoothness of trade
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