Journal article
Capturing the Impact of Unobserved Sector-Wide Shocks on Stock Returns with Panel Data Model
Economic Record, Vol.91(295), pp.495-508
2015
Abstract
Unobserved sector-wide common shocks cause the issue of cross-sectional dependence (CSD) in panel data modelling of stock returns. In this study we apply two econometric techniques: the seemingly unrelated regression approach and a Bayesian estimator for panel data models with factor structural errors, to allow for CSD within a particular sector. By applying these models to monthly stock returns of S&P100 companies from six sectors over 10 years, we can capture and measure the heterogeneous impacts of not only observed individual company accounting fundamentals and market-wide common shocks, but also unobservable sector-wide common shocks. Results from the empirical study show that the impacts from both observed factors and unobserved sector-wide common shocks vary markedly across companies. After controlling for observed accounting fundamentals and market-wide common factors, a considerable proportion of the variation in stock returns can be attributed to unobservable sector-wide common shocks.
Details
- Title
- Capturing the Impact of Unobserved Sector-Wide Shocks on Stock Returns with Panel Data Model
- Authors/Creators
- K.J. Hong (Author/Creator)Bin Peng (Author/Creator)X. Zhang (Author/Creator)
- Publication Details
- Economic Record, Vol.91(295), pp.495-508
- Publisher
- Wiley
- Identifiers
- 991005543539507891
- Copyright
- Economic Society of Australia
- Murdoch Affiliation
- School of Management and Governance
- Language
- English
- Resource Type
- Journal article
- Note
- Online 4 August 2015
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- 6 Social Sciences
- 6.10 Economics
- 6.10.63 Corporate Governance
- Web Of Science research areas
- Economics
- ESI research areas
- Economics & Business