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Economic uncertainty and Australian stock returns

Economic uncertainty and Australian stock returns Motivated by the purportedly close relation between economic uncertainty and future stock returns in the US, we investigate the predictive role of this potential factor in the Australian stock market. Applying portfolio‐sorting strategies based on economic uncertainty exposure measured by individual stock betas, we find that uncertainty betas negatively relate to future stock returns over short‐ and medium‐term trading horizons. Moreover, common asset pricing models, including the capital asset pricing model (CAPM) and the Fama and French three‐, five‐, and six‐factor models, cannot explain these relations. The results remain robust when applying firm‐level Fama and MacBeth regressions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting & Finance Wiley

Economic uncertainty and Australian stock returns

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References (66)

Publisher
Wiley
Copyright
Accounting and Finance © 2022 AFAANZ
ISSN
0810-5391
eISSN
1467-629X
DOI
10.1111/acfi.12892
Publisher site
See Article on Publisher Site

Abstract

Motivated by the purportedly close relation between economic uncertainty and future stock returns in the US, we investigate the predictive role of this potential factor in the Australian stock market. Applying portfolio‐sorting strategies based on economic uncertainty exposure measured by individual stock betas, we find that uncertainty betas negatively relate to future stock returns over short‐ and medium‐term trading horizons. Moreover, common asset pricing models, including the capital asset pricing model (CAPM) and the Fama and French three‐, five‐, and six‐factor models, cannot explain these relations. The results remain robust when applying firm‐level Fama and MacBeth regressions.

Journal

Accounting & FinanceWiley

Published: Sep 1, 2022

Keywords: Return predictability; Economic uncertainty; Stock returns; ICAPM

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