Economic Forces, Fundamental Variables, and Equity Returns

Posted: 26 Oct 1999

See all articles by Jia He

Jia He

The Chinese University of Hong Kong (CUHK) - Department of Finance

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Abstract

We investigate whether size and book-to-market values of equity (BM) are proxying for macroeconomic risk found in Chen, Roll, and Ross's (CRR) multifactor model or are measures of stocks' risk exposure to relative distress. We find that the role of size subsumes stocks' risk exposures associated with the CRR factors and that the CRR multifactor model does not explain the BM effect. We also find that size and BM are related to relative distress and that relative distress can explain the size effect, but only partially the effect of BM, on average stock returns.

JEL Classification: E6

Suggested Citation

He, Jia and Ng, Lilian, Economic Forces, Fundamental Variables, and Equity Returns. Available at SSRN: https://ssrn.com/abstract=5607

Jia He

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong
+882 2609 8568 (Phone)

Lilian Ng (Contact Author)

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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