Introducing a framework identifying stock market return determinants: A micro and macroeconomic perspectives: An Empirical study on the Egyptian Stock Market

Abstract

The aim of this study is to develop a framework identifying the micro and macroeconomic variables that are expected to affect stocks’ return of emerging markets. For the microeconomic variables, the five variables presented in Fama and French five factor model are examined (market excess return, size, value, profitability and investment) while for the macroeconomic model, five macroeconomic variables are selected such that three variables are domestic (exchange rate, inflation rate, industrial production index) and two are global macroeconomic factors (federal fund rate and global commodity index). Time-series regression analysis is run to determine the significant variables of each model separately using monthly data from June 2010 to June 2020. The results of the microeconomic variables showed the significant impact of size, value and profitability variables. Regarding the macroeconomic variables, the results have revealed that the only significant variable is the industrial production index with a positive impact on excess-return of portfolios constructed. The value of the current study emerges from its contribution in filling the gap of the macroeconomic literature as a gap is found in the empirical studies that investigated the impact of global macroeconomic variables on the stock market of the emerging economies. Additionally, the study adds to the microeconomic literature that examines the validity of Fama and French Five factor model while using a different measure for the profitability variable.