The stock market perception of industry risk through the utilisation of a general multifactor model

M. G. Kavussanos, S. N. Marcoulis

    Research output: Contribution to journalArticlepeer-review

    Abstract

    The aim of this paper is to apply a multifactor model to analyse the determinants of the risk - return relationship of US listed water transportation stocks and thereafter compare them with the corresponding determinants of other transport industries such as air transportation, rail transportation and trucks, and non - transport industries such as electricity, gas, petroleum refining and real estate over the period July 1985 - June 1995. This analysis is done by estimating the sensitivities of a set of predetermined micro and macro economic factors to the cross - sectional differences in the returns of the companies in each industry. The set of the predetermined factors consists of micro and macro economic variables utilised in previous research and includes: the market value of equity (size); the book - to - market value of equity ratio; the earnings - to - price ratio; the asset - to - market value of equity ratio; and the asset - to - book value of equity ratio while the macro economic factors utilised are: industrial production; the term structure of interest rates; oil prices; consumption; and inflation. The relationship between the aforementioned factors and industry returns is established by employing the Seemingly Unrelated Regression Model (SURM). Important findings of this paper are: Firstly, micro and macro economic factors have a significant role to play in explaining the cross - section of industry stock returns. Secondly, the returns of different industries are explained by different sets of macro and micro economic factors.

    Original languageEnglish
    Pages (from-to)77-98
    Number of pages22
    JournalInternational Journal of Transport Economics
    Volume27
    Issue number1
    Publication statusPublished - 2000

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