Explaining the Stock Return Via a Macroeconomic Multifactor Model

This paper investigated the relationship between economic variables and stock returns in the industrial sector inJordan. The study is conducted at monthly intervals over the six-and-half years period from July 1997 to 2003using a value weighted average returns. Four variables were examined; Industrial production, expected inflation,unanticipated inflation and term structure. The evidence suggested that only two variables do really affect thestock return when considering the returns without its dividends, which are the expected inflation and theunanticipated inflation; while only one variable affects the stock returns when taking the dividends intoconsideration; this is the unanticipated inflation.In addition, this study examined if there is a long-run relationship or a short-run relationship between theunanticipated inflation and stock returns. The results showed that there is a long-run relationship between thetwo variables but there is no short-run relationship between them