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Stock market alphas help predict macroeconomic innovations.

Author Andy Yeh Alpha

This research article delves into mutual causation between stock market alphas and macroeconomic innovations. The online appendix provides complete econometric details and algorithms for empirical analysis. This empirical analysis includes the recursive multivariate filtration of Fama-French dynamic conditional alphas, ARMA-GARCH representation of both dynamic conditional alphas and betas, and vector autoregression analysis of mutual causation between alpha spreads and macro surprises. 

Description:

We extract dynamic conditional factor premiums from the Fama-French factor model and find that most anomalies disappear after we account for time variation in these premiums. New vector autoregression evidence shows that mutual causation between dynamic conditional alphas and macroeconomic surprises serves as a core qualifying condition for fundamental factor selection. This economic insight is an incremental step toward drawing a distinction between rational risk and behavioral mispricing models. As dynamic conditional alphas often reveal the marginal investor’s fundamental news and expectations about the cross-section of average asset returns, our economic insight helps enrich macroeconomic asset return prediction.

 

This research article delves into mutual causation between stock market alphas and macroeconomic innovations. The online appendix provides complete econometric details and algorithms for empirical analysis. This empirical analysis includes the recursive multivariate filtration of Fama-French dynamic conditional alphas, ARMA-GARCH representation of both dynamic conditional alphas and betas, and vector autoregression analysis of mutual causation between alpha spreads and macro surprises. 

 

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This ebook shares new economic insights, investment memes, and stock portfolio strategies through both blog posts and patent specifications on our AYA fintech network platform. AYA fintech network platform is every investor's social toolkit for profitable investment management. We can help empower stock market investors through technology, education, and social integration.

 

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