The effect of macroeconomic variables on the size value and momentum factor in Germany

Bachelor Thesis from the year 2018 in the subject Business economics - Investment and Finance grade: 10 University of Passau language: English abstract: Today there are dozens of papers existing which investigate the relationship between macroeconomic variables such as GDP growth exchange rates inflation etc. and the 4 factors used in the Carhart 4-factor model. However most of the papers select corresponding control variables a priori and might miss some macroeconomic variables which hold much information about one of the factors. Overcoming this problem constitutes the core of this paper. With a three tiered statistical procedure which comprises the use of clustering and LASSO regressions I am aiming at solving that challenge. I start with more than 300 macroeconomic control variables which proxy for all possible variables out there and select those with the highest explanatory power.