Identification of Risk Factors by Using Macroeconomic and Firm-Specific Variables Simultaneously in Tehran Stock Exchange by Applying Canonical Correlation Analysis

Document Type : Original Article


Assistant Professor, Department of Management, Faculty of Management and Accounting, Islamic Azad University,Qazvin Branch, Qazvin, Iran.


The main objective of this study is to give the insight of describing mixing accounting ratios and macroeconomic variables as the risk factors in Iran. The results indicate a significant relationship between book to market ratio, financial leverage, size factors and expected stock returns in the Iranian market. In consistent with the other studies, we came to the conclusion that the term structure of interest rate is the only macroeconomic variable that has been significant in the model, if size and book to market ratio is also existed in the model.Maximum %28 of variance explained by canonical variate.


1)     Aleati , Gottardo and Murgia  ( 2000). The Pricing of Italian Equity Returns. Journal of Economic Nots. Vol. 29 ( 2), 153-177.
2)     Anatolyev, S. (2005). A ten-year retrospection of the behavior of Russian stock returns. BOFIT Discussion Papers 9/2005. Helsinki: Bank of Finland, Institute for Economies in Transition.
3)     Ariff, M andWeng Soon ( 2007).Empirical Study of Arbitrage Pricing Theory in Emerging Market. Published PhD dissertation, University Putra Malaysia.
4)     Azeez and Yonezawa, Y. (2006). Macroeconomic factors and the empirical content of the Arbitrage Pricing Theory in the Japanese stock market. Journal of Science Direct, Vol. 18, 568-591.
5)     Banz, R. W. (1981). The Relationship between Return and Market Value of Common Stocks . Journal of Financial Economics, Vol. 9, 3 –18.
6)     Basu, Sanjoy. (1983 ).The Relationship between Earnings Yield, Market Value and Return for NYSE Common Stocks: Further Evidence. Journal of Financial Economics , Vol.12, 129-156.
7)     Berry M. A., Burmeister E., McElroy M. (1988). Sorting out risks using known APT factors. Financial Analyst Journal, Vol. 44( 2), 29–41.
8)     Black, F. and M. Scholes. (1973). The Pricing of Options and Corporate Liabilities. Journal of Political Economy, 81, 637-659.
9)     Bower, D. and D. E. Logue.(1984) Arbitrage Pricing Theory and Utility Stock Returns, Journal of Finance, 39, 1041–54.
10)  Central bank Of Iran (CBI) , Monthly Bulletin, 2007-2015.
11)  Chen, N.F. (1983). Some Empirical Tests of the Theory of Arbitrage Pricing .Journal of Finance, Vol 38(5), 1393-1414.
12)  Chen, S-J.and Hsieh, C-H. ( 1985).  An Exploratory Investigation of The Firm Size Effect. Journal of Financial Economics, Vol. 14, 451-471.
13)  Chen, N., Roll, R., Ross, S. A. (1986).Economic Forces and the Stock Market. Journal of Business, 59(1), 383 – 403.
14)  Chen, S-J., Hsieh, C-H., Jordan, B. D. (1998).Real estate and the Arbitrage Pricing Theory: macrovariables vs. derived factors. Real Estate Economics, Vol. 25 (3), 505–523.
15)  Chui, Andy C. W. and K. C. John Wei. (1998). Book-to-Market, Firm Size, and the Turn-of the Year Effect: Evidence from Pacific-Basin Emerging Markets. Pacific-Basin Finance Journal, 6:275-293.
16)  Dhankar, S. & Esq, R. S. (2005). Arbitrage Pricing Theory and the Capital Asset Pricing Model – evidence from the Indian stock market. Journal of Financial Management& Analysis, Vol. 18 (1), 14–28.
17)  Dhrymes, P. J., Friend, I. Gultekin, B. N. (1984).  A critical re-examination of the empirical evidence on the Arbitrage Pricing Theory. The Journal of Finance, Vol. 39 ( 2), 323–346.
18)  Fama, E. F. (1981). Stock Returns, Real Activity, Inflation, and Money. American Economic Review, 71, 545 – 565.
19)  Fama, E. F., French, K. R. (1988). Dividend Yields and Expected Stock Returns. Journal of Financial Economics, 22(1), 3 – 25.
20)  Fama, E. F. (1990). Stock Returns, Expected Returns, and Real Activity. Journal of Finance, 45, 1089 – 1109.
21)  Fama, E. F., French, K. R. (1992). The Cross-Section of Expected Stock Returns. Journal of Finance, 47, 427- 465.
22)  Fama, E. F., French, K. R. (1993). Common Risk Factors in the Returns on Stocks and Bonds. Journal of Financial Economics, 33, 3 – 56.
23)  Fama, E. F., French, K. R. (1995). Size and Book-to-Market Factors in Earnings and Returns. Journal of Finance, 50, 131- 155.
24)  Fama, E. F., French, K. R. (1996). Multifactor Explanations of Asset Pricing Anomalies. Journal of Finance, 51(1), 55 – 84.
25)  Fama, E. F. & Macbeth, J. (1973). Risk, return, and equilibrium: Empirical tests. Journal of Political Economy, Vol. 81( 3), 607–636.
26)  Garrett, I and Priestly, R (1997). Do Assumption about Factor Structure Matter in Empirical Tests of the APT? Journal of business Finance and Accounting 24(2), 249-260.
27)  Gibbons, M.R. ( 1982). Multivariate Tests of Financial Models: A New Approach. Journal of Financial Economics,10, 3- 27.
28)  He, J. and L. K. Ng. ( 1994) Economic Forces, Fundamental Variables, and Equity Returns, Journal of Business,  Vol. 67, 599–609.
29)  Jegadeesh, N. (1992). Does Market Risk Really Explain Size Effect. Journal of  Financial and Quantitative Analysis, 27(3), 337 – 351.
30)  Kryzanowski  L, and To, M. (1983).General Factors Models and Structure of security Returns. Journal of Financing and Quantitative Analysis, Vol.18, 31-52.
31)  Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review of Economics and Statistics, Vol. 47 ( 2), 13–37.
32)  MacKinlay, A. C. (1995). Multifactor Models Do Not Explain Deviations from the CAPM. Journal of Financial Economics 38, 3–28.
33)  Mei, J. (1993).A semiautoregression Approach to the Arbitrgae Pricing Theoy. Journal Of Finance , Vol. XLVIII (2), 599-620.
34)  Mohseni, GH. (2007). How we can test APT? Journal of Economic Investigation, University Tehran, Vol.19,65-95.
35)  Mossin, J. (1966). Equilibrium in a Capital Asset Market. Econometrica, 34(4), 768-783.
36)  Nateghi.M and Ghalibaf.A.H. (2006).Investigation of week efficiency in Tehran Stock Exchange Market. Published Master dissertation. University Alzahra, Tehran.
37)  Orgenization of the Petroleum Exporting Countries (OPEC), Quarterly, Yearly Bulletin ( 1991-2010).
38)  Rahmani,A, Sheri, A (2006). Accounting Variables, Market Variables and Stock Return in Emerging Markets: Case of Iran, Journal of Allameh Tabatabai University, Tehran, Vol.19,1-16.
39)  Richard Mayne. (1993). Translator's Introduction in Fernand Braudel, A History of Civilization, New York: Penguin Books, pp. xxvi-xxvii.
40)  Roll, R. (1977). A Critique of Asset Pricing Theory’s Tests; Part 1: On Past and Potential Testability of the Theory. Journal of Financial Economics 4, 129-176.
41)  Roll, R., Ross, S. A. (1980). An Empirical Investigation of the Arbitrage Pricing Theory.  Journal of Finance, 35, 1073 – 1103.
42)  Roll, R. & Ross, S. A. (1980). A critical re-examination of the empirical evidence onthe Arbitrage Pricing Theory: A Reply. The Journal of Finance, Vol. 39, ( 2), 347–350.
43)  Ross, S. A. (1976). The Arbitrage Theory of Capital Asset Pricing, Journal of Economic Theory, 13, 341 – 360.
44)  Ross, Stephen A., Randolph W. Westerfield, and Jeffrey F. Jaffe. (2002). Corporate Finance (6th ed.). Boston: McGraw-Hill Irwin.
45)  Rozenberg, Reid, and Lanstein (1985). Persuasive Evidence of Market    Inefficiency. Journal of Portfolio Management, 11(3), 9 – 16.
46)  Sabetfar.P, Fan FAh.C, Shamsher.M Noordin.B.(2011). Test of Arbitrage Pricing Theory on the Tehran Stock Exchange: The Case of A Shariah-Compliant Close EconomyInternational Journal of Economic Finance,22(3),220-221.
47)  Sabetfar.P, Hajimohammadi. R. Fan FAh.C.(2013). Long Term Multi Factor Analysis by Using Accounting information: Evidence with Iranian Stock data: Life Science Journal, 10(1).
48)  Scholes, M., and Williams, J.(1997) . Estimating Betas From Non synchronous Data, Journal of Financial Economics Vol
49)  Sharpe, W. F. (1964). Factors in NYSE Security Returns, 1931-1979. Journal of Portfolio Management,8( 2), 5-19.
50)  Sharpe, W. F (1964). Capital Asset Prices: A theory of market equilibrium under conditions of risk”. The Journal of Finance, Vol. 19, ( 6), 425–442.
51)  Stattman, D. (1980). Book Value and Stock Returns. The Chicago MBA, 4. Stock Returns. Journal of Finance, 44(1), 135 – 148.
52)  Tehran Stock Exchange Market, Monthly, Quarterly and Yearly Bulletin, (1967-2010).