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In an empirical analysis I'm trying to predict log() weekly stock returns. I'm trying to model stock returns in a panel data model framework.

As explanatory variables I have 1) a measure of investor attention for each stock , 2) size, and 3) price momentum during the previous 4 and 8 weeks respectively.

I have access to the WRDS database, i.e. CRSP, Compustat, IBES etc.

Any suggestions as to other variables i can include in my empirical analysis? I would like suggested variables to have the same frequency, i.e. weekly observations.

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Very often a stock's return is determined primarily by what the broad market, or perhaps the stock's sector, is doing: to see this, take a random stock, and it will be very hard to justify most moves - until you consider the market [e.g. S&P500] or sector [e.g. transportation].

Thus, I would include the beta coefficient, which measures the volatility in comparison to the market as a whole. In addition, I would consider including the returns (and perhaps also momentum) of the market or relevant sector.

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  • $\begingroup$ Thanks for your answer. How about using company specific variables, e.g. compnay X's moment, size etc., instead using momoent or size for the market/the relevant sector? $\endgroup$ – Sunv Sep 4 '14 at 20:20
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    $\begingroup$ @Sunv, you said you were already using the company-specific variables - which I think is certainly a good idea. You were asking regarding other variables so I suggested looking at the broader sector/market - but that was not supposed to be instead of your original explanatory variables. Do the analysis for both, and see what makes sense. Good luck! $\endgroup$ – Shahar Sep 7 '14 at 20:36
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A stock's returns are also correlated to the performance of the ETFs or Index Funds that include that stock; for example, if you look at returns for MSFT (Microsoft), you might want to look at the performance of QQQ as well.

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  • $\begingroup$ Correct, but that is just because the index or ETF represents the market or relevant sector, as I have explained in my answer. $\endgroup$ – Shahar Sep 7 '14 at 20:30
  • $\begingroup$ The question is about suggesting additional variables into the empirical analysis which is what I am doing. The OP might not find it that obvious to look at ETFs or Index Funds after reading your answer, given that you don't mention either but prefer a more vague "returns of the market or relevant sector." $\endgroup$ – g_puffo Sep 8 '14 at 0:45

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