Macroeconomic factors explaining stock volatility: multi-country empirical evidence from the auto industry

Abstract

This paper aims to explore which macroeconomic factors affect the volatility of the automakers stock prices by employing a multifactor model. The study uses quarterly panel data of 39 automakers quoted on the stock exchanges in the 11 countries. It studies the effects of 19 macroeconomic variables from January 2000 to December 2017, and proposes the mixed-effect model constructed based on employing genetic algorithm and AIC criterion, and compares its explanatory power with the existing multifactor model (El Khoury, 2015). This paper suggests that the proposed model can shed more light on explaining the variability of stock prices of the quoted automakers. The findings show there are positive linkages between automaker's stock return volatility and explanatory variables such as stock market development, GDP and unemployment. Conversely, an inverse linkage between the dependent variable and money supply and IPI was found. The study demonstrates that selected macroeconomic factors can also be used as predictors.