Forecasting Individual Stock Returns Using Macroeconomic and Technical Variables

37 Pages Posted: 13 Mar 2019 Last revised: 24 May 2022

See all articles by Hui Zeng

Hui Zeng

Massey University - Department of Economics and Finance

Ben R. Marshall

Massey University - School of Economics and Finance

Nhut H. Nguyen

Auckland University of Technology

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: July 25, 2017

Abstract

We show that the previously documented predictability of macroeconomic and technical variables for market returns is also evident in individual stock returns. Technical variables generate better predictability on firms with higher limits to arbitrage (smaller, illiquid, volatile firms), while macroeconomic variables better predict firms with lower limits to arbitrage. Technical predictors show stronger predictive power for high limits to arbitrage firms across the business cycle, whereas macroeconomic variables capture more predictive information for firms with low limits to arbitrage during recessions.

Keywords: Firm level predictability, macroeconomic and technical predictors, principal component analysis (PCA), limits to arbitrage, cross-sectional predictability, business cycle.

JEL Classification: C58, E32, G11, G12, G17

Suggested Citation

Zeng, Hui and Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Forecasting Individual Stock Returns Using Macroeconomic and Technical Variables (July 25, 2017). Available at SSRN: https://ssrn.com/abstract=3339603 or http://dx.doi.org/10.2139/ssrn.3339603

Hui Zeng (Contact Author)

Massey University - Department of Economics and Finance ( email )

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Ben R. Marshall

Massey University - School of Economics and Finance ( email )

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Nhut H. Nguyen

Auckland University of Technology ( email )

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Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
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Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

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