THE EFFECTS OF ECONOMIC EVENTS ON COMMON STOCK RETURNS
Abstract
The stock market plays an important role in allocating limited capital resources. The allocating process of the resources is primarily determined on the basis of the price mechanism. Among the unlimited elements in the information set, the rates of return on alternative assets are commonly believed to have a major influence on the determination of stock returns. This study concentrates on examining how stock returns are related to the macroeconomic variables, changes in the growth rate of the money supply and changes in the inflation rate which alter the entire level of rates of return on assets in financial markets. The study also investigates the relationship between stock returns and the rates of return on competing assets. The primary purpose of this dissertation is to examine empirically the direction, the magnitude and the speed of response of the stock returns to these macroeconomic variables. The research is comprised of two parts. First, the study estimates the effects of the macroeconomic variables on the stock market return which represents the general stock market condition. Second, the study takes a closer look at the relationship between returns on individual stocks and the economic variables. Returns on individual stocks may react differently to these economic variables because of different characteristics of individual firms.
Degree
Ph.D.
Subject Area
Finance
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