Stock prices and macroeconomic factors: Some European evidence

•Production and interest rates determine stock returns in France, Germany and the UK.•Production has gradually gained importance relative to interest rates.•All this evidence is common to the three main European economies.•The European evidence is in sharp contrast with the results for the US.

This paper analyses the dependence of stock prices on macroeconomic variables in the three largest European economies: France, Germany and the United Kingdom. In recent decades, industrial production and long-term interest rates have been important significant variables accounting for approximately one half of annual movements in stock prices. Both factors seem to be equally important, but a closer examination reveals that the weight of these factors has clearly moved from interest rates to production. This evidence is common to all three of these European countries and is in sharp contrast with the results for the US.