The Determinants of US Stock Market Returns
Samih A. Azar*Faculty of Business Administration & Economics, Haigazian University, Mexique Street, Kantari, Beirut, Lebanon
Abstract
In the literature there are many determinants for the times series of US stock returns. The most notable are:
inflation, inflation uncertainty, and the relative change in the value of the US dollar. This paper aims to reconsider and
update this research question. Monthly data sets are used with the S&P 500 as the measure of the stock market index, and
the US trade-weighted foreign exchange rate index as the measure of the US dollar. Least squares regressions, GARCH
regressions and least square regressions with endogenous calendar breakpoints are estimated. The evidence is strong that
US inflation and US inflation uncertainty do not have an impact on US stock market returns. However, for the recent
sample, a significant relation between the US S&P 500 and the US dollar exists, while in the older sample such a relation
is negated. Finally, there is evidence that the growth rate in the money supply has a negative and delayed impact on US
stock returns whatever the econometric specification. This anomalous relation runs against market efficiency.
Keywords: Baa corporate bond yield, economic exposure, GARCH, Gordon constant growth dividend model, inflation, inflation uncertainty, least squares with calendar breakpoints, market efficiency, money supply, real personal disposable income, S&P 500, US dollar.
Article Information
Article History:
Received Date: 11/2/2014
Revision Received Date: 3/4/2014
Acceptance Date: 26/5/2014
Electronic publication date: 30/7/2014
Collection year: 2014
© Samih A. Azar; Licensee Bentham Open.
open-access license: This is an open access article licensed under the terms of the Creative Commons Attribution Non-Commercial License (
http://creativecommons.org/licenses/by-nc/3.0/) which permits unrestricted, non-commercial use, distribution and reproduction in any medium, provided the
work is properly cited.
* Address correspondence to this author at the Faculty of Business
Administration & Economics, Haigazian University, Mexique Street, Kantari, Beirut, Lebanon; Tel/Fax: +9611349230.
E-mail: samih.azar@haigazian.edu.lb
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Manuscript submitted on 11-2-2014 |
Original Manuscript |
The Determinants of US Stock Market Returns |