The effects of macroeconomic factors upon the systematic risk of common equity and the parameters of the Security Market Line.

摘要

The purpose of this study is to explore the relationships between several macroeconomic variables and the beta index of systematic risk, the market risk premium, and the riskless rate of interest. A financial-macroeconomic model is constructed in which equilibrium conditions within the commodity, money, and capital markets are specified. Solution of this simultaneous system permits the derivation of the reduced form equations for the beta index and the parameters of the Security Market Line and, thus, allows the determination of the effects of the exogenous economic aggregates on these three endogenous variables. The effects of the actual and unanticipated growth rates in real money and income, the unanticipated rate of inflation, the bond and money financed components of the deficit, and the average tax rate in the economy on the beta index and the parameters of the SML are empirically tested.; Variations of the theoretical reduced form equations are used in the empirical analysis. Four models, comprising two sets of equations, are tested. The first set of equations employs slope binary variables in order to determine if contemporaneous economic activity affects the endogenous variables differently during business expansions and contractions. The second set uses lagged economic aggregates in order to explore the effects of lagged monetary and fiscal policy on the endogenous variables. One equation in each set contains actual economic factors while the second equation uses the unanticipated components of several of the economic aggregates. The purpose is to determine if unanticipated economic activity affects the endogenous variables differently than actual economic activity.; The evidence reveals that the economic aggregates affect both the beta indices of individual firms and the market risk premium differently during economic expansions and contractions. These results were determined to hold for both the actual and unanticipated variables models. The economic factors were found not to affect the riskless rate differently during the two phases of business cycle activity.; Both unanticipated and actual lagged economic variables were found to significantly affect the beta indices and the riskless rate. Lagged economic activity was determined to have little effect on the market risk premium.