Macroeconomic Factors Do Influence Aggregate Stock Returns

Aim: In this activity, there are three aims:

1. you will develop your understanding of the role of macroeconomic factors on stock returns
2. you will become familiar with the GARCH approach of stock returns modelisation
3. you will become familiar with academic literature that deals with this subject and you will reflect on how to use it in a professional context

Duration: 1 hours

In this activity, we would like you to firstly read the article from Flannery, Mark J., and Aris A. Protopapadakis, 2002, Macroeconomic Factors Do Influence Aggregate Stock Returns, The Review of Financial Studies 15, 751782.

Again, aim to employ an active reading approach by emphasising the different elements that structure the study while you are reading the text.

Then, we would ask you to provide a detailed and well-documented answer to each of the following points:

1. What is the tension in the literature about the role of macroeconomic factors on stock returns, and what is the contribution of this paper?

2. What is the methodology used?

• Detail the sample and variables employed.
• Explain the GARCH approach. Find online resources that further help you to understand this technique and cite them.
• Explain how the results of the GARCH are analysed.

3. Describe the key results:

• First, restate each hypotheses.
• Second, give the result for each variable.
• Last, relate the result to the hypothesis and conclude.

4. Conclusions:

• Provide a conclusion on this research.
• Then, link it to what you have learned in this course.
• Last, reflect on how you can/will integrate this study in your professional practices.