Please use this identifier to cite or link to this item:
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: The Information Content of US Stock Market Factors
Author(s): McMillan, David
Elgammal, Mohammed
Ahmed, Fatma
Contact Email:
Keywords: Stock Market Factors
GDP Growth
Macro economic risk
Asset Pricing
Issue Date: 13-Jun-2020
Citation: McMillan D, Elgammal M & Ahmed F (2020) The Information Content of US Stock Market Factors. Studies in Economics and Finance.
Abstract: Purpose This paper considers the economic information content within several popular stock market factors and to the extent to which their movements are both explained by economic variables and can explain future output growth. Design/methodology/approach Using USA stock portfolios from 1964 to 2019, we undertake three related exercises: whether a set of common factors contain independent predictive ability for stock returns, what economic and market variables explain movements in the factors and whether stock market factors have predictive power for future output growth. Findings The results show that several of the considered factors do not contain independent information for stock returns. Further, most of these factors are not explained by economic conditions, nor they provide any predictive power for future output growth. Thus, they appear to contain very little economic content. However, the results suggest that the impact of these factors is more prominent with higher macroeconomic risk (contractionary regime). Research limitations/implications The stock market factors are more likely to reflect existing market conditions and exhibit a weaker relation with economic conditions and do not act as a window on future behaviour. Practical implications Fama and French 3 factor model still have better explanations for stock returns and economic information more than any other model. Originality/value We contribute to the literature by examining whether a selection of factors provides unique information when modelling stock returns data. It also investigates what variables can predict movements in the stock market factors. Third, it examines whether the factors exhibit a link with subsequent economic output. This should establish whether the stock market factors contain useful information for stock returns and the macroeconomy or whether the significance of the factor is a result of chance. The results in this paper should advance our understanding of asset price movement and the links between the macroeconomy and financial markets and thus be of interest to academics, investors and policymakers.
DOI Link: 10.1108/SEF-10-2019-0385
Rights: Publisher policy allows this work to be made available in this repository. Published in Studies in Economics and Finance by Emerald. The original publication is available at: This article is deposited under the Creative Commons Attribution Non-commercial International Licence 4.0 (CC BY-NC 4.0). Any reuse is allowed in accordance with the terms outlined by the licence ( To reuse the AAM for commercial purposes, permission should be sought by contacting
Notes: Output Status: Forthcoming/Available Online
Licence URL(s):

Files in This Item:
File Description SizeFormat 
sief_information_content.PDFFulltext - Accepted Version490.14 kBAdobe PDFView/Open

This item is protected by original copyright

A file in this item is licensed under a Creative Commons License Creative Commons

Items in the Repository are protected by copyright, with all rights reserved, unless otherwise indicated.

If you believe that any material held in STORRE infringes copyright, please contact providing details and we will remove the Work from public display in STORRE and investigate your claim.