Economic forces and the stock market revisited

The pricing of the Chen, Roll, and Ross (CRR) macrovariables is re-examined and found to be surprisingly sensitive to reasonable alternative procedures for generating size portfolio returns and estimating their betas. These methods include the full-period post-ranking return approach used in many recent studies. Strong evidence of pricing is obtained only for their industrial production growth factor and, in another contrast, for the VW market index. In particular, the corporate-government bond return spread, an important factor in CRR, is insignificantly negative for the 1958–1983 period, corroborating the cross-sectional regression results.