Macroeconomic factors and equity returns in Borsa Istanbul

Atılgan, Yiğit and Demirtaş, Özgür and Erdoğan, Alper (2015) Macroeconomic factors and equity returns in Borsa Istanbul. İktisat, İşletme ve Finans, 30 (349). pp. 9-30. ISSN 1300-610X (Print) 1308-4658 (Online)

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Official URL: http://dx.doi.org/10.3848/iif.2015.349.4334


This paper investigates equity return exposure to various macroeconomic factors and the performance of factor betas in predicting the cross-sectional variation in stock returns. We utilize a two-step procedure to directly test the implications of the Arbitrage Pricing Theory. First, we calculate monthly factor betas and then, we estimate the sensitivity of equity returns towards the factor betas. We find that (i) there exists a negative and significant relation between interest rate betas and future equity returns; (ii) the inclusion of market, book-to-market, size and momentum factor betas does not subsume the predictive power of the interest rate beta; and (iii) these results are driven by the debt-to-equity ratios of individual firms. We conclude that the financial leverage driven sensitivity of returns towards interest rates is a priced risk factor in the Turkish stock market.

Item Type:Article
Uncontrolled Keywords:Asset Pricing Models, Equity Returns, Arbitrage Pricing Theory, Macroeconomic Factors
Subjects:H Social Sciences > HG Finance > HG4501-6051 Investment, capital formation, speculation
ID Code:27773
Deposited By:Yiğit Atılgan
Deposited On:16 Dec 2015 14:58
Last Modified:23 Aug 2019 12:19

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