Capturing the Impact of Unobserved Sector-Wide Shocks on Stock Returns with Panel Data Model

Hong, KJ; Peng, B; Zhang, X

Capturing the Impact of Unobserved Sector-Wide Shocks on Stock Returns with Panel Data Model

Hong, KJ Peng, B

Zhang, X

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Publication Type:: Journal Article
Citation:: Economic Record, 2015, 91 (295), pp. 495 - 508
Issue Date:: 2015-12-01

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Field	Value	Language
dc.contributor.author	Hong, KJ	en_US
dc.contributor.author	Peng, B https://orcid.org/0000-0003-4231-4713	en_US
dc.contributor.author	Zhang, X	en_US
dc.date.available	2020-05-25T19:03:26Z
dc.date.issued	2015-12-01	en_US
dc.identifier.citation	Economic Record, 2015, 91 (295), pp. 495 - 508	en_US
dc.identifier.issn	0013-0249	en_US
dc.identifier.uri	http://hdl.handle.net/10453/41164
dc.description.abstract	© 2015 Economic Society of Australia. 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.	en_US
dc.relation.ispartof	Economic Record	en_US
dc.relation.isbasedon	10.1111/1475-4932.12208	en_US
dc.subject.classification	Economics	en_US
dc.title	Capturing the Impact of Unobserved Sector-Wide Shocks on Stock Returns with Panel Data Model	en_US
dc.type	Journal Article
utslib.citation.volume	295	en_US
utslib.citation.volume	91	en_US
utslib.for	140304 Panel Data Analysis	en_US
utslib.for	140302 Econometric and Statistical Methods	en_US
utslib.for	14 Economics	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Science
pubs.organisational-group	/University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
utslib.copyright.status	open_access
pubs.declined	2016-01-13T13:50:16.561+1100
pubs.deleted	2016-01-13T13:50:16.561+1100
pubs.issue	295	en_US
pubs.publication-status	Published	en_US
pubs.volume	91	en_US

Abstract:

© 2015 Economic Society of Australia. 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.

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http://hdl.handle.net/10453/41164