The Determinants of Italian Stock Market Returns: Some Preliminary Evidence

The paper investigates the possible determinants of returns on the Italian Stock Market. In drawing from the empirical literature devoted to the US stock market, the authors pay special attention to the peculiar timing of data releases in Italy and to the availability of anticipations for the industrial production index. The results indicate that innovations in selected macroeconomic variables are significantly related to the returns on a broad market index of the Milan Stock Exchange as well as to industry specific indexes, and that the use of industrial production variables helps improve the fit of the model. When a test of the Arbitrage Pricing Theory is carried out on the returns of individual stocks, the innovations in the macroeconomic variables appear to be factors priced by the market in addition to a market index.