TITLE:
Progress Made towards Consensus on Arbitrage Pricing Theory Macroeconomic Factors: A Brief Review of Literature
AUTHORS:
Chimuka Nyanga, Abubaker Qutieshat
KEYWORDS:
Macroeconomic Factor, Stock Return, Arbitrage Pricing Theory
JOURNAL NAME:
Open Journal of Business and Management,
Vol.10 No.2,
March
17,
2022
ABSTRACT: Purpose: The study
aims to develop insights on the progress made in agreeing upon the set of macroeconomic factors be included in the
arbitrage pricing theory (APT). Theoretical Framework: The paper is brief review of relevant literature focusing on studies that have tested different
macroeconomic factors for possible relationship with stock returns. Design/Metho- dology/Approach: A brief
overview of the literature was performed to determine the macroeconomic factors
with a positive relationship with stock
returns to be used in the APT from studies on the cost of capital evaluations. Findings: The article contributes to the relevant literature by showing that there is consensus on interest rate
as the macroeconomic factor that strongly explains the relationship
with stock returns. Other microeconomic factors
such as inflation, exchange rates, money supply and industrial production showed strong prospects but require
more tests. Research, Practical & Social Implications: The article identifies the macroeconomic factors that need further studies based on the prospects shown in the studies
reviewed. Practically, the article contributes to narrowing the research gap on
macroeconomic factors to be used in the APT. Originality/Value: The article adds value to the body of knowledge by
showing that only interest rate has been agreed upon as the macroeconomic
factor with a positive relationship with stock returns. The article also
narrows the gap of the set of macroeconomic factors that need further testing
thereby hastening the process leading to the use of the APT.