Microeconomic and Macroeconomic Factors — A Unified Approach

Abstract

Chapters 5 and 6 of this book utilised multiequation multifactor models whose explanatory variables have been, in the case of chapter 5, a set of microeconomic factors and in the case of chapter 6, a set of macroeconomic factors. The set of microeconomic factors utilised in chapter 5 was initiated in the seminal paper of Fama and French (1992) and others such as Banz (1981), Bhandari (1988), Chan, Hamao and Lakonishok (1991), Brown, Kleidon and Marsh (1983) and many others. These factors are the market value of equity; the earningsto-price ratio; the asset-to-market value of equity; and the asset-to-book value of equity. Similarly, the set of macroeconomic factors utilised in chapter 6 was initiated in the study of Chen, Roll and Ross (1986) and further investigated in the papers of Ferson and Harvey (1991), Hardouvelis (1988), Martinez and Rubio (1989), Wasserfallen (1989) and Poon and Taylor (1991). The factors employed, other than the market, are unanticipated changes in the following set of macroeconomic factors: industrial production, the term structure of interest rates, oil prices, consumption, and inflation.