Advanced

Macroeconomic exposure of Swedish firms’ revenue and its impact on stock returns

Tillaeus, Eric LU and Sköld, Niklas (2017) NEKN02 20171
Department of Economics
Abstract
Previous research suggests that by examining the regional origins of revenues and the expected economic growth in regions, supra-normal returns may be achieved by creating zero investment portfolios. Nevertheless, such previous research examines countries with low export dependence and a high internal demand or uses data from a number of countries with di↵erent economic dependencies. The purpose of this paper is to study the same field of research, as in existing research, however using data solely from Sweden. Sweden is an economy reliant on export with a market that houses less internal demand than the other countries examined. We investigate the macroeconomic exposure of Swedish firms’ revenue together with growth expectations where... (More)
Previous research suggests that by examining the regional origins of revenues and the expected economic growth in regions, supra-normal returns may be achieved by creating zero investment portfolios. Nevertheless, such previous research examines countries with low export dependence and a high internal demand or uses data from a number of countries with di↵erent economic dependencies. The purpose of this paper is to study the same field of research, as in existing research, however using data solely from Sweden. Sweden is an economy reliant on export with a market that houses less internal demand than the other countries examined. We investigate the macroeconomic exposure of Swedish firms’ revenue together with growth expectations where they face exposure. Based on this exposure and the expected future economic growth we created a variable, exposureit, to help explain stock returns. Based on the relationship between our variable and stock returns, we create two zero investment portfolios to try and achieve abnormal returns. We find that for Swedish firms, expected future economic growth has a negative correlation with stock returns, and by following this result the portfolio that takes a long position in stocks with a low exposureit and a short position in high exposureit was able to generate the highest return for the period. We further conclude that it is not possible to achieve abnormal returns based on this strategy. (Less)
Please use this url to cite or link to this publication:
author
Tillaeus, Eric LU and Sköld, Niklas
supervisor
organization
course
NEKN02 20171
year
type
H1 - Master's Degree (One Year)
subject
keywords
Geographical segment data Macroeconomic exposure Stock returns
language
English
id
8914300
date added to LUP
2017-06-13 15:18:11
date last changed
2017-06-13 15:18:11
@misc{8914300,
  abstract     = {Previous research suggests that by examining the regional origins of revenues and the expected economic growth in regions, supra-normal returns may be achieved by creating zero investment portfolios. Nevertheless, such previous research examines countries with low export dependence and a high internal demand or uses data from a number of countries with di↵erent economic dependencies. The purpose of this paper is to study the same field of research, as in existing research, however using data solely from Sweden. Sweden is an economy reliant on export with a market that houses less internal demand than the other countries examined. We investigate the macroeconomic exposure of Swedish firms’ revenue together with growth expectations where they face exposure. Based on this exposure and the expected future economic growth we created a variable, exposureit, to help explain stock returns. Based on the relationship between our variable and stock returns, we create two zero investment portfolios to try and achieve abnormal returns. We find that for Swedish firms, expected future economic growth has a negative correlation with stock returns, and by following this result the portfolio that takes a long position in stocks with a low exposureit and a short position in high exposureit was able to generate the highest return for the period. We further conclude that it is not possible to achieve abnormal returns based on this strategy.},
  author       = {Tillaeus, Eric and Sköld, Niklas},
  keyword      = {Geographical segment data Macroeconomic exposure Stock returns},
  language     = {eng},
  note         = {Student Paper},
  title        = {Macroeconomic exposure of Swedish firms’ revenue and its impact on stock returns},
  year         = {2017},
}