《投资学原理 Investments》课程教学资源（阅读资料）Economic Forces and the Stock Market

Economic forces and the TABLE 1 lossary and Definitions of Variables Symbo riable Definition or Source Inflation Log relative of U.S. Consumer Treasury-bill End-of-period return on I- month LGB (1958-78: Ibbotson and Baa Return EWNY Equally weighted equities Return on equally weighted port- VWNY Value-weighted equities Return on a value-weighted port- folio of NYSE-listed stocks (CRSP) Growth rate in re geton [1982]; Survey of Cur- rent Busines Oil prices og relative of Producer Price Index/Crude petroleum series Bureau of Labor Statistics Derived Series log [IP(rIP(I-1) YP(1) Annual growth, industrial pro- loge [P(r )IP(I- 12)1 E[() Expected infation Fama and Gibbons(1984 Unexpected inflation Real interest(ex post) DEI(t) Change in expected inflation E[(t+1)]-E[()t-l URP(n) Risk premium Baa(r)-LGB() UTS() Term structure The monthly series of yearly growth rates, YP(t), was examined because the equity market is related to changes in industrial activity in the long run. Since stock market prices involve the valuation of cash flows over long periods in the future, monthly stock returns may not be highly related to contemporaneous monthly changes in rates of indus- trial production, although such changes might capture the information pertinent for pricing. This month's change in stock prices probably reflects changes in industrial production anticipated many months into ontent downloaded by the authorized user from 192.168. 82.218 on Tue, 4 Dee 2012 03: 43 28 AM

Economic Forces and the Stock Market 387 TABLE 1 Glossary and Definitions of Variables Symbol Variable Definition or Source Basic Series I Inflation Log relative of U.S. Consumer Price Index TB Treasury-bill rate End-of-period return on 1-month bills LGB Long-term government bonds Return on long-term government bonds (1958-78: Ibbotson and Sinquefield [1982]; 1979-83: CRSP) IP Industrial production Industrial production during month (Survey of Current Busi￾ness) Baa Low-grade bonds Return on bonds rated Baa and under (1953-77: Ibbotson [1979], constructed for 1978- 83) EWNY Equally weighted equities Return on equally weighted port￾folio of NYSE-listed stocks (CRSP) VWNY Value-weighted equities Return on a value-weighted port￾folio of NYSE-listed stocks (CRSP) CG Consumption Growth rate in real per capita consumption (Hansen and Sin￾gleton [1982]; Survey of Cur￾rent Business) OG Oil prices Log relative of Producer Price Index/Crude Petroleum series (Bureau of Labor Statistics) Derived Series MP(t) Monthly growth, industrial loge[IP(t)/IP(t - 1)] production YP(t) Annual growth, industrial pro- loge[IP(t)/IP(t - 12)] duction E[I(t)] Expected inflation Fama and Gibbons (1984) UI(t) Unexpected inflation I(t) - E[I(t)lt - 1] RHO(t) Real interest (ex post) TB(t - 1) - I(t) DEI(t) Change in expected inflation E[I(t + 1)It] - E[I(t)It - 1] URP(t) Risk premium Baa(t) - LGB(t) UTS(t) Term structure LGB(t) - TB(t - 1) The monthly series of yearly growth rates, YP(t), was examined because the equity market is related to changes in industrial activity in the long run. Since stock market prices involve the valuation of cash flows over long periods in the future, monthly stock returns may not be highly related to contemporaneous monthly changes in rates of indus￾trial production, although such changes might capture the information pertinent for pricing. This month's change in stock prices probably reflects changes in industrial production anticipated many months into This content downloaded by the authorized user from 192.168.82.218 on Tue, 4 Dec 2012 03:43:28 AM All use subject to JSTOR Terms and Conditions

388 ournal of Business he future. Therefore, subsequent statistical work will lead this vari tble by I year, similar to the variable used in Fama(1981) Because of the overlap in the series, YP(r)is highly autocorrelated A procedure was developed for forecasting expected YP(n)and a series of unanticipated changes in YP(r), and changes in the expectation itself were examined for their influence on pricing. The resulting series of- fered no discernible advantage over the raw production series, and, as a consequence, they have been dropped from the analysis. 4 B. Inflo Unanticipated infiation is defined as UI(t)=I()-E[(t)t-1 where I(n)is the realized monthly first difference in the logarithm of the Consumer Price Index for period t. The series of expected inflation E[I(nt-1] for the period 1953-78, is obtained from Fama and Gib bons(1984). If RHO(n)denotes the ex post real rate of interest applica ble in period t and TB(t-1)denotes the Treasury-bill rate known at he end of period t- 1 and applying to period t, then Fisher's equation asserts that TB(t-1)=E[RHO()t-1]+E[()t-1l Hence, TB(t-1)-I(r)measures the ex post real return on Treasury bills in the period From a time-series analysis of this variable, Fama and Gibbons(1984)constructed a time series for E[RHO(nr-1].Our expected inflation variable is defined by subtracting their time series for the expected real rate from the TB(t-1)series Another inflation variable that is unanticipated and that might have an influence separable from UI is DEI(1)=E[I(t+1)-EI()t-1]l the change in expected inflation. We subscript this variable with t since is (in principle) unknown at the end of month t-1. while, strictly speaking, DEl(t) need not have mean zero under the additional as sumption that expected inflation follows a martingale this variable may be treated as an innovation, and it may contain information not present in the ui variable. This would occur whenever inflation forecasts are influenced by economic factors other than past forecasting errors (Notice that the Ui series and the dei series will contain the inform tion in a series of innovations in the nominal interest rate, TB. )5 4. Results that include these series are available in an earlier draft of the paper, which is available from the authors on request pated inf tively correlated with the unanticipated change in the This follows from th bservation that the Fisher equation(6)holds for reali s as well as for expecta- tions. The UI(n) series also has a simple correlation of unanticipated inflation Fama(1981) ontent downloaded by the authorized user from 192.168. 82.218 on Tue, 4 Dee 2012 03: 43 28 AM

388 Journal of Business the future. Therefore, subsequent statistical work will lead this vari￾able by 1 year, similar to the variable used in Fama (1981). Because of the overlap in the series, YP(t) is highly autocorrelated. A procedure was developed for forecasting expected YP(t) and a series of unanticipated changes in YP(t), and changes in the expectation itself were examined for their influence on pricing. The resulting series of￾fered no discernible advantage over the raw production series, and, as a consequence, they have been dropped from the analysis.4 B. Inflation Unanticipated inflation is defined as {JI(t) = I(t) -E[I(t)lt - 1], (5) where I(t) is the realized monthly first difference in the logarithm of the Consumer Price Index for period t. The series of expected inflation, E[I(t)lt - 1] for the period 1953-78, is obtained from Fama and Gib￾bons (1984). If RHO(t) denotes the ex post real rate of interest applica￾ble in period t and TB(t - 1) denotes the Treasury-bill rate known at the end of period t - 1 and applying to period t, then Fisher's equation asserts that TB(t - 1) = E[RHO(t)lt - 1] + E[I(t)lt - 1]. (6) Hence, TB(t - 1) - I(t) measures the ex post real return on Treasury bills in the period. From a time-series analysis of this variable, Fama and Gibbons (1984) constructed a time series for E[RHO(t)lt - 1]. Our expected inflation variable is defined by subtracting their time series for the expected real rate from the TB(t - 1) series. Another inflation variable that is unanticipated and that might have an influence separable from UI is DEI(t) = E[I(t + 1)It] - E[I(t)lt - 1], (7) the change in expected inflation. We subscript this variable with t since it is (in principle) unknown at the end of month t - 1. While, strictly speaking, DEI(t) need not have mean zero, under the additional as￾sumption that expected inflation follows a martingale this variable may be treated as an innovation, and it may contain information not present in the U1 variable. This would occur whenever inflation forecasts are influenced by economic factors other than past forecasting errors. (Notice that the UI series and the DEI series will contain the informa￾tion in a series of innovations in the nominal interest rate, TB.)5 4. Results that include these series are available in an earlier draft of the paper, which is available from the authors on request. 5. As an aside, the resulting unanticipated inflation variable, UI(t), is perfectly nega￾tively correlated with the unanticipated change in the real rate. This follows from the observation that the Fisher equation (6) holds for realized rates as well as for expecta￾tions. The UI(t) series also has a simple correlation of .98 with the unanticipated inflation series in Fama (1981). This content downloaded by the authorized user from 192.168.82.218 on Tue, 4 Dec 2012 03:43:28 AM All use subject to JSTOR Terms and Conditions

Economic Forces and the Stock Markel c. Risk premia To capture the effect on returns of unanticipated changes in risk pre- mia, we will employ another variable drawn from the money markets The variable, UPR. is defined as UPR(t)="Baa and under"bond portfolio return(t)-lGB(r),(8) where LGB(r)is the return on a portfolio of long-term government bonds obtained from Ibbotson and Sinquefield(1982)for the perio 1953-78. From 1979 through 1983, lGB(t) was obtained from the Cen- ter for Research in Securities Prices(CRSP)data file. Again, UPR is not formally an innovation, but, as the differences in two return series it is sufficiently uncorrelated that we can treat it as unanticipated, and we will use it as a member of the set of economic factors The low-grade bond return series is for nonconvertible corporate bonds, and it was obtained from R. G. Ibbotson and Company for the period prior to 1977. a detailed description of the sample is contained in Ibbotson( 1979). The low-grade series was extended through 1983 by choosing 10 bonds whose ratings on January 1966 were below Baa. By 1978 these bonds still were rated below Baa, but their maturity was than that of the long-term government bond series. These 10 were then combined with three that were left over from the Ibbotson series at the end of 1978 to create a low-grade bond portfolio of 13 bonds in all. The returns on this portfolio were then used to xtend the upr series beyond 1977 and through 1983. two further difficulties with the series are that the ratings have experienced consid erable inflation since the mid-1950s and that the low-grade series con- tains bonds that are unrated The upr variable would have mean zero in a risk-neutral world, and it is natural to think of it as a direct measure of the degree of risk aversion implicit in pricing(at least insofar as the rating agencies main tain constant standards for their classifications). We hoped that U would reflect much of the unanticipated movement in the degree of risk aversion and in the level of risk implicit in the market,'s pricing of D. The Term structure To capture the infuence of the shape of the term structure, we employ another interest rate variable UTS(t)= LGB()- TB(t-1). 6. It could be argued that UPR captures a leverage effect, with highly levered firms with lower ratings. Furthermore, UPR is also similar to a measure of ity returns since a substantial portion of the value of low-grade bonds comes from the me sort of call option(behind secured debt) as for ordinary stock ontent downloaded by the authorized user from 192.168. 82.218 on Tue, 4 Dee 2012 03: 43 28 AM

Economic Forces and the Stock Market 389 C. Risk Premia To capture the effect on returns of unanticipated changes in risk pre￾mia, we will employ another variable drawn from the money markets. The variable, UPR, is defined as UPR(t) = "Baa and under" bond portfolio return (t) - LGB(t), (8) where LGB(t) is the return on a portfolio of long-term government bonds obtained from Ibbotson and Sinquefield (1982) for the period 1953-78. From 1979 through 1983, LGB(t) was obtained from the Cen￾ter for Research in Securities Prices (CRSP) data file. Again, UPR is not formally an innovation, but, as the differences in two return series, it is sufficiently uncorrelated that we can treat it as unanticipated, and we will use it as a member of the set of economic factors. The low-grade bond return series is for nonconvertible corporate bonds, and it was obtained from R. G. Ibbotson and Company for the period prior to 1977. A detailed description of the sample is contained in Ibbotson (1979). The low-grade series was extended through 1983 by choosing 10 bonds whose ratings on January 1966 were below Baa. By 1978 these bonds still were rated below Baa, but their maturity was shorter than that of the long-term government bond series. These 10 bonds were then combined with three that were left over from the Ibbotson series at the end of 1978 to create a low-grade bond portfolio of 13 bonds in all. The returns on this portfolio were then used to extend the UPR series beyond 1977 and through 1983. Two further difficulties with the series are that the ratings have experienced consid￾erable inflation since the mid-1950s and that the low-grade series con￾tains bonds that are unrated. The UPR variable would have mean zero in a risk-neutral world, and it is natural to think of it as a direct measure of the degree of risk aversion implicit in pricing (at least insofar as the rating agencies main￾tain constant standards for their classifications). We hoped that UPR would reflect much of the unanticipated movement in the degree of risk aversion and in the level of risk implicit in the market's pricing of stocks.6 D. The Term Structure To capture the influence of the shape of the term structure, we employ another interest rate variable, UTS(t) = LGB(t) - TB(t - 1). (9) 6. It could be argued that UPR captures a leverage effect, with highly levered firms being associated with lower ratings. Furthermore, UPR is also similar to a measure of equity returns since a substantial portion of the value of low-grade bonds comes from the same sort of call option (behind secured debt) as for ordinary stock. This content downloaded by the authorized user from 192.168.82.218 on Tue, 4 Dec 2012 03:43:28 AM All use subject to JSTOR Terms and Conditions