Macro determinants of US stock market risk premia in bull and bear markets

Arbeitspapier

This research uses macro factors to explain four standard U.S. stock market risk premia, i.e. the market excess return (RM-RF), size (SMB), value (HML), and momentum (WML). We find in-sample predictive power of macro factors, in particular at a one-year horizon. Differentiating between bull and bear market states roughly doubles forecast performance compared to neglecting market states. All four stock market risk premia can be explained with R-squares of 10% to 25%. However, macro factors have limited predictive power in a true out-of-sample setting.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Diskussionsbeitrag ; No. 520

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: stock market ; risk premia ; factor analysis ; market states

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bätje, Fabian ; Menkhoff, Lukas
• Event: Veröffentlichung
• (who): Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät
• (where): Hannover
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/92948
• Last update: 10.03.2025, 11:41 AM CET