Presenter(s)

    Michael Anthony Capicotto, Evan J Willmann

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    Description

    Most financial economists agree that macroeconomic factors, as exogenous variables, must be included in asset pricing models in order to explain the variation in expected returns. In this study, I test the hypothesis that Gross Domestic Income (GDI) explains stock market price movements over time. I use linear regression analysis to identify the covariation between GDI and the top ten stocks by market value in the following SPDR sectors; (1) Healthcare, (2) Consumer Discretionary, (3) Information Technology, and (4) Industrials. Based on the regression coefficients (B), I develop portfolio weights for the stocks within each sector, with higher weights given to stocks with higher B coefficients. Assuming a $1,000,000 investment in each sector portfolio, I calculate returns for the years 2009 - 2017. I also calculate out of sample returns for the first two months in 2018. The benchmark portfolio used to determine excess returns is the SPDR ETF SPY.

    Publication Date

    4-18-2018

    Project Designation

    Independent Research

    Primary Advisor

    Tony S. Caporale, Robert D. Dean

    Primary Advisor's Department

    Economics and Finance

    Keywords

    Stander Symposium project

    Gross Domestic Income and Stock Returns: An Empirical Analysis, 2009-2017

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