Applied Econometrics and International Development Vol (2017)

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1 Applied Econometrics and International Development Vol. 7- (07) THE IMPACT OF RELEVANT INTERNATIONAL FACTORS ON THE RETURNS OF IBEX 5 COMPANIES, Maria-Caridad SEVILLANO * Francisco JAREÑO Abstract: This paper focuses on analyzing the effect of different international variables on the returns of companies in the IBEX 5. Previous research has focused on analyzing the impact of national factors (US stock market, US interest rates, oil price, and two financial stress indices: CFSI and VIX) on the domestic market. This paper adopts a different perspective to study the sensitivity of business returns. It first analyzes the individual level of companies and then analyzes the sector level. It also studies the effect of the economic crisis on the sensitivity of stock returns. To conclude, the impact of international factors on corporate returns differs from the effects of national variables demonstrated in previous research. Keywords: Stock Market; Business Returns; International Factors JEL classification: G, G5, O5. Introduction The main objective of this paper is to analyze the sensitivity of the business returns of companies listed in the Spanish index IBEX 5 to changes in international factors. Furthermore, this work aims to take a step forward in the research on the Spanish stock market by examining wide and global explanatory factors rather than domestic ones. Globalization has led to interconnections of markets worldwide, so international events can lead to disturbances in the national stock market. A sufficiently broad sample period (January 000-April 06) is chosen to study the influence of the economic crisis on the sensitivity of returns. Building on the previous literature, the factors proposed in the present study are the international (US) market return, the international (US) interest rate, the oil price and two financial indicators that highly relevant in the North American market: CFSI and VIX. All of these factors correspond to the US financial market. This study includes one of the most recognized American market indices: the Standard & Poor's 500 index. In addition, the financial indices included in this study are representative of the US financial market. Finally, the CFSI is the financial stress index provided by the Cleveland Federal Reserve, and the VIX is the volatility index of the Chicago Board Options Exchange. * Mª Caridad Sevillano, Department of Economics and Finance, University of Castilla-La Mancha, Faculty of Economic and Business Sciences, Plaza de la Universidad,, 007, Albacete (Spain) MCaridad.Sevillano@alu.uclm.es, Francisco Jareño (corresponding author) Department of Economics and Finance, University of Castilla-La Mancha, Faculty of Economic and Business Sciences, Plaza de la Universidad,, 007, Albacete (Spain), Francisco.Jareno@uclm.es With the exception of the oil price.

2 Applied Econometrics and International Development Vol. 7- (07) The main reason why representative factors of the US financial market are chosen is their relevance on an international level. The US market is the largest financial market in the world, and any major event in that market, such as the subprime mortgage crisis, has repercussions for other markets. The main contribution of this paper is to complement and corroborate the previous literature that has also attempted to analyze the sensitivity of individual company or sectoral returns to certain explanatory variables. Thus, the first analysis is conducted at the individual-company level to study the impact of the international factors described above on the 5 companies listed in the Spanish IBEX 5 index. This analysis is completed with conclusions at the sector level. In addition, the effect of the economic crisis on the sensitivity of returns is studied to obtain a sufficiently broad view of the study presented. This paper starts by reviewing the results of previous studies and highlights the main differences between this research and most of the previous literature. The results obtained do not coincide with those presented by the previous literature regarding the interest rate, as the present research finds a predominantly positive effect on business returns. The conclusions obtained regarding the oil price coincide with those presented by Cong et al. (008), showing that this factor is not decisive in the variability of corporate returns. Finally, the present research shows a negative effect of the CFSI and VIX indices on the returns of the IBEX 5 companies. The study is structured into four main parts. After this introduction, section includes a brief review of the previous literature. Then, section presents the data and methodology used in this study. Third, section 4 presents the empirical study, and the last section includes the main conclusions of this study.. Previous literature This paper is part of the branch of the financial literature that analyses economic and financial factors that explain variations in returns of relevant (Spanish) companies. More specifically, over the years, several authors have analyzed the effects of shocks in different financial variables on company returns (Czaja et al., 00; Cong et al., 008, Fama and French, and 05, Ferrando et al., 05, Jareño, 005, 006 and 008, Stone 74, among many others). The variables included in this study have been analyzed by the previous literature. In particular, the bulk of research has focused its efforts on studying the impact of the interest rate on both financial (Ballester et al., 00, Czaja, 00, Memmel, 0, Shamsuddin, 04) and non-financial (Bartram, 00 and Jareño, 006) companies. In this sense, previous studies have corroborated the same effect in both financial and non-financial companies, that is, a negative and statistically significant relationship between nominal interest rates and stock returns (Bartram, 00; Ballester et al., 00, Jareño, 008, Martínez-Moya, 05, Soto et al., 005; 8

3 Sevillano, M.C., Jareño, F. The Impact Of International Factors On The Returns Of Ibex 5 Companies Tessaromatis, 00, among others), which strongly depends on the flow-through capability of individual companies. Another relevant factor analyzed by previous studies is the oil price. In general, this variable has a negative and statistically significant effect on stock returns, mainly due to the inflationary effect of this variable (Cunado and Pérez, 005). In recent years, different financial indices have also become relevant in research on the factors that explain the variability in stock returns. More specifically, previous literature has analyzed the impacts of the CFSI and VIX, concluding that both have a negative effect on the stock market. Ohmi and Okimoto (06) focus on studying the impact of this factor on the correlation between bond and stock returns in the US market, concluding that as this financial index increases, the correlation between equity markets and bonds decreases. On the other hand, Bianconi et al. (0) study the correlation between financial stress in the United States and the financial markets of the emerging BRIC countries Brazil, Russia, India and China and determine that there is a negative relation between financial stress and stock returns in these countries, which increased after the outbreak of the economic crisis.. Data and Methodology This paper starts by examining the individual business returns of the 5 companies included in the Spanish index IBEX 5. This study uses the composition of the IBEX 5 on April, 06, to analyze the temporal evolution of these companies based on different factors. The sample period of January 000 to April 06 is chosen for the analysis of the correlation between the returns of IBEX 5 companies and different international factors. Regarding the data frequency, it is necessary to note that these are monthly data, based on the first day of the month. In the case of corporate returns, the first day of the month is used, according to the data availability. Although the sample period is from January 000 to April 06, some companies in the Spanish IBEX 5 began to quote later; therefore, there are no previous data, or the last data available are prior to the end of the sample. Therefore, this problem affects both the dependent and the independent variables. The next step is to obtain the logarithmic returns as follows: 4 where P t refers to the closing price on the first day of month t, P t- refers to the closing price on the first day of month t-, and D t refers to the dividend associated with the closing price of the first day on month t. The flow-through effect refers to the absorption capability of the variability in the nominal interest rate caused by changes in the inflation rate. Thus, the interest rate sensitivity would be lower in the case of companies with a greater capability to transfer inflationary changes in prices (Cano and Jareño, 05; Cano et al., 06. Jareño, 005; Jareño and Navarro, 00). For example, the data related to the price of oil, CFSI and VIX are from December Closing prices adjusted by dividends and splits.

4 Applied Econometrics and International Development Vol. 7- (07) Although this study analyses the sensitivity of the individual returns of each company, in subsequent parts of this paper, the results are interpreted and treated at the sectoral level. Therefore, it is necessary to present both the set of companies incorporated in the study and the sectoral classification used (please see Table ). Table. Companies and sectors included in this study Sector Company name Code Sector : Oil and Energy Repsol, S.A. Enagás, S.A. Endesa, S.A. Iberdrola, S.A. Gas Natural, S.A. Red Eléctrica Corporación (REE), S.A. Sector : Basic Materials, Industry and Construction Acerinox, S.A. Arcelomittal, S.A. Gamesa Corporación Tecnológica, S.A. Acciona, S.A. ACS, Actividades de Construcción y Servicios, S.A. Ferrovial, S.A. Fomento, Construcción y Contratas, S.A. Sacyr, S.A. Obrascon Huarte Lain, S.A. Técnicas Reunidas, S.A. Sector : Consumer Goods Grifols, S.A. Sector 4: Consumer Services Dia, distribuidora int. de alimientación, S.A. Mediaset España Comunicación, S.A. Industria de Diseño Textil, S.A. "Inditex" International Consolidat Airlines Group AENA, S.A. Abertis Infraestructuras, S.A. Sector 5: Financial and Real Estate Services Banco Bilbao Vizcaya Argentaria, S.A. Banco Sabadell, S.A. Banco Popular Español, S.A. Banco Santander, S.A. Bankia, S.A. Bankinter, S.A. Caixabank, S.A. Mapfre, S.A. Merlin Properties, SOCIMI, S.A. Sector 6: Technology and Telecommunications Telefónica, S.A. Amadeus IT Holding, S.A. Indra Sistemas, S.A. Source: Own elaboration based on the Bolsa de Madrid classification E E E E4 E5 E6 E7 E8 E E0 E E E E4 E5 E6 E7 E8 E E0 E E E E4 E5 E6 E7 E8 E E0 E E E E4 E5 40

5 Sevillano, M.C., Jareño, F. The Impact Of International Factors On The Returns Of Ibex 5 Companies Once the thirty-five companies are presented, the main descriptive statistics of the variables are highlighted (see Table ). Table. Main descriptive statistics of the companies returns Mean Median Max. Min. Std. Dv. Asime Kur J-B Prob. Obs try tosis E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E Source: Own preparation based on EViews results 4

6 Applied Econometrics and International Development Vol. 7- (07) The results show relevant differences between the companies analyzed. AENA is the company with the highest average return, followed by companies such as Iberdrola, Red Eléctrica Corporación, Grifols, Inditex and IAG. On the other hand, Bankia is the company with a lower mean return, along with companies such as Enagás, Ferrovial, Arcelomittal, Sacyr and Amadeus. Furthermore, in contrast to those in the financial sector, the returns of companies in the consumer services sector seem to be significantly high. Grifols, AENA and Amadeus are the companies with the highest median return, while Arcelomittal, Banco Popular and Bankia have a much lower median than the rest. Iberdrola, Red Eléctrica Corporación and Banco Popular present the highest maximum returns. In contrast, Iberdrola, Gamesa and Banco Popular exhibit the lowest minimum returns. Bankia has the highest dispersion (standard deviation), followed by companies such as Arcelomittal and Sacyr; therefore, these companies present the highest risk. Finally, almost all companies present negative asymmetry, and there is no considerable excess of kurtosis. Regarding the independent factors, data concerning market return are extracted from the YahooFinance website. Specifically, this variable is analyzed through the returns of the Standard and Poor's 500 market index (S&P500), which is one of the most relevant and representative indices of the North American stock market. As in the case of business returns, the values are obtained at the close of the first day of the month in which data existed, and with them, the logarithmic returns are calculated. In alignment with the bulk of the previous literature, the impact of the interest rate is analyzed. 5 More specifically, ten-year nominal interest rates corresponding to the American public debt provided by the official US Treasury page are used. 6 Considering some of the works noted in previous sections, such as Ciner (00), Cong et al. (008) and Moya-Martínez et al. (0), the oil price is also an explanatory factor in the sensitivity of financial returns. Thus, it is included in this research. The CFSI refers to the Cleveland Financial Stress Index, which is designed to warn regulators and policy makers about the onset of market tensions (Jakobsen, 06). This index has been included in some studies in recent years. Studies have found a direct impact of the variable on the stock market, increasing the probability of 5 After studying the effect of -y and 0-y nominal interest rates, the results show a greater effect of the second, which is supported by the inclusion of this variable in most of the works analyzed in the literature review (Ferrando et al., 05)

7 Sevillano, M.C., Jareño, F. The Impact Of International Factors On The Returns Of Ibex 5 Companies volatility. These data are extracted from the website of the Federal Reserve Bank of Cleveland. 7 Finally, authors such as Ohmi and Okimoto (06) have shown that the VIX has great predictive and significant power, as well as a negative correlation between bond and stock yields. To compare the results obtained by these authors, this financial index is included in this study. It refers to the volatility index of the Chicago Board Options Exchange and is closely related to investor expectations. Thus, it influences them in such a way that at a low index, expectations predict that the market will fall (and vice versa with a high index). The source of these data is the website of the Chicago Board Options Exchange (CBOE). 8 The main descriptive statistics of the explanatory variables collected in Table show a positive mean for all variables except the oil price. The VIX is the most important factor (4.7), whereas the CFSI shows a much lower variable than the rest (0.8). Most variables have a median value that is very close to their average value, such as interest rate (average 0.06 and median 0.08), market yield (average 0.00 and median 0.008), and CFSI (mean 0.8 and median 0.6). Regarding dispersion, the VIX index is highlighted because it presents a dispersion far higher than the rest of the factors included in the analysis. Finally, most of the values are scattered to the right of the distribution in almost all cases, that is, they have leptokurtic distributions with positive asymmetry. Table. Main descriptive statistics of the explanatory factors: MR: market return, IR: interest rates, OIL: oil price, CFSI: the CFSI index, VIX: the VIX index MR IR OIL CFSI VIX Mean Median Max Min Std. Dv Asimetry Kurtosis J-B Prob Observations 6 6 Source: Own preparation based on EViews results

8 Applied Econometrics and International Development Vol. 7- (07) After analyzing the main descriptive statistics, it is necessary to study the seasonality of the time series in order to verify that the mean and median do not change throughout the sample period. Thus, three tests two unit root tests (Dickey-Fuller Increased, ADF, and Phillips-Perron, P-P) and one stationarity test (Kwiatkowski- Phillips-Schmidt-Shin, KPSS) are performed. The tests show that almost all variables included in the analysis maintain a constant mean and median throughout the sample period, that is, they are stationary. Only the variables Merlin (E7), Santander (E) and the interest rate, which had a unit root, have to be transformed into first differences. The present empirical study is based on an analysis of correlations. To analyze the association between each of the companies studied (dependent variables) and the independent variables, Pearson s correlation is used. This method can be used for any group of data, and the correlation value ranges from - to +. A value of - indicates a perfect negative linear relationship, + indicates a perfect positive linear relationship, and 0 indicates that there is no correlation (Pita and Pértega, 7). This method of correlation is used both to study the correlation between dependent and independent variables and to analyze the relationships among the independent variables. 4. Main Results The empirical analysis has three main parts. The first is an individual-level analysis, that is, the correlation between each dependent variable and the independent variables is studied. Second, it is considered relevant to present the results at the sectoral level, which show the relationships between firms (dependent variables) classified by sector and the five independent variables. Finally, a subperiod analysis is performed to assess the effect of the economic situation on the correlations between the variables. 4.. Individual Analysis The matrices of the correlations are obtained through Eviews, and Table 4 summarizes the main results, that is, the sign of the relations between the explained and explanatory variables and the level of significance. First, the US stock market return (S&P500) has a positive and statistically significant effect on almost 4% of IBEX 5 companies. There are differences between the results of the present research and those mentioned in the literature review. However, because this paper analyses the impact of international and non-national factors, the above statement is largely in line with other studies that have analyzed the impact of different market returns on stock returns (Fama and French, ; Jareño, 008, Stone, 74). The returns of companies such as ACS, BBVA, Endesa and Técnicas Reunidas have the most statistically significant effect on changes in market returns. Therefore, 44

9 Sevillano, M.C., Jareño, F. The Impact Of International Factors On The Returns Of Ibex 5 Companies these companies seem to follow more closely the evolution of the international economic cycle at a global level (specifically the North American market). Second, regarding the interest rate explanatory factor, many researchers have focused on the impact of the evolution of the national interest rate on individual companies or sector returns. Many studies have examined the impact of changes in interest rates on stock returns, such as Ballester et al. (00), Bartram (00), Czaja et al. (00), Soto et al. (005) and Tessaromatis (00), among many others. They confirm a negative and statistically significant sensitivity of stock returns to changes in the interest rate variable. In the present study, only.4% of the companies analyzed coincide with those in previous studies, showing a negative and significant sensitivity, and 57.% of companies show the opposite sign. This contrast may be due to the fundamental difference in this research, which consists mainly of analyzing the sensitivity of company returns to changes in international factors. On the other hand, previous literature determines a negative relationship between the nominal interest rate and the stock price. However, it would be interesting to separate the effects of the real interest rate and inflation to avoid distortions in the combination of the two variables. Thus, authors such as Jareño (005 and 008) have proposed more exhaustive studies to determine the effect of the nominal interest rate, separating the variations in the real interest and inflation rates. This could be the reason why the present results contrast in an important way with the results of previous studies: They do not show a unique and inverse relation between stock returns and interest rates or the relevance of the sectors to which the companies belong. Only.8% of companies experience a significant effect of oil price, of which 7.% is positive and 5.7% negative. The highest percentage of companies experience no impact of the oil price: 77.%. The results coincide with previous studies that include this explanatory variable. Thus, although some authors have found a negative or positive statistically significant effect of the variable on corporate returns (Park and Ratti, 007), others have contrasted these assertions by concluding in their studies that the oil price is not a relevant variable in the analysis of individual stock returns (Cong et al., 008). Although the results of the present analysis coincide with the second group of authors, it is not necessary to ignore the conclusions reached by authors such as Martínez-Moya et al. (0), who stress that the impact strongly depends on economic periods and events and on the sector in which the company operates. Companies such as Acciona and ACS present negative and statistically significant sensitivity to changes in the oil price, while others, such as Inditex, Indra and Red Eléctrica Corporación, have the opposite sign. Thus, this result confirms the impact of the sector to which a particular company belongs. Furthermore, Acciona and ACS are construction companies and, therefore, have a close inverse relationship with the oil price due to its dependence on fuel. The authors highlight a positive and statistically significant effect in companies from importing countries and a negative and statistically significant effect in companies from oil exporting countries. 45

10 Applied Econometrics and International Development Vol. 7- (07) Finally, the results presented in Table 4 coincide with previous studies regarding the explanatory factor VIX. This factor has a negative and statistically significant effect on more than half of the analyzed companies, in line with other studies, such as Ohmi and Okimoto (06). Table 4. Sensitivity of the IBEX 5 companies to changes in market returns (MR), interest rates (IR), oil price (OIL), VIX and CFSI Percentage of companies with Signifi Signifi Signifi No Signifi significant exposure cance (%) cance (5%) cance (0%) cance MR 0 (57,%) Significant sensitivity (4,%) 5 (4,8%) Positive sensitivity (4,%) 5 (4,8%) Negative sensitivity IR Significant sensitivity Positive sensitivity Negative sensitivity OIL Significant sensitivity (,4%) (5, 7%) Positive sensitivity - Negative sensitivity (,8%) VIX Significant sensitivity 6 (7,4%) 46 8 (5,4%) 5 (4,8%) (8,6%) 5 (4,%) (8,6 %) (,4%) 4 (68,5%) 0 (57,%) 4 (,4%) 8 (,8%) 6 (7,%) 8 (5,4%) Positive sensitivity Negative sensitivity (7,4%) (,4%) (5,4%) CFSI Significant sensitivity 5 (4,%) 6 (45,7%) (60 %) Positive sensitivity Negative sensitivity 5 (4,%) 6 (45,7 %) (60 %) Source: Own preparation based on EViews results (,4%) 7 (77,%) 7 (48,6%) 4 (40%)

11 Sevillano, M.C., Jareño, F. The Impact Of International Factors On The Returns Of Ibex 5 Companies Similarly, financial stress has a statistically significant effect on 60% of the companies studied. More specifically, the results show a negative and statistically significant effect of the explanatory variable on stock returns. This conclusion cannot be verified with any previous study because although the CFSI has been previously analyzed, no study has analyzed the relationship between this financial stress index and stock returns. Several companies analyzed show negative and statistically significant sensitivity to the two explanatory variables, VIX and CFSI, simultaneously. Some of them are Abertis, Arcelomittal, Mediaset and Técnicas Reunidas. Normally, the companies that show sensitivity to both variables belong to very different sectors, so it does not seem that the industry factor is influential. To complete the previous study, an additional analysis is included with scatterplots (Figure ). This figure displays six companies with peculiar or representative performances. The combination of the results observed in the case of the interest rate variable includes two significant examples, one representing companies whose returns exhibit a positive relation to changes in this explanatory variable and another for cases in which the correlation has a negative sign. Figure. Representative scatter plots of each explanatory factor Panel A: Market Returns (MR) Panel B: Interest Rates (IR): negative relationship 47

12 Applied Econometrics and International Development Vol. 7- (07) Panel C: Oil Price Panel D: Interest Rates (IR): positive relationship Panel E: VIX Panel F:CSFI 4.. Sectoral Analysis In this second part, we use the classification in sectoral portfolios previously presented in Table. Thus, the differences in the number of companies that are classified into each of the six sectors have been revealed and proceeded to contribute information in terms of percentages. More than 8% (0) of the companies analyzed are in sector, almost 6% () are in sector 5, slightly more than 7% (5) are in sectors and 4, approximately % () are in sector 6, and only.8% () are in sector. First, there is no doubt that sectors and show the greatest sensitivity in market returns, while sectors 5 and 6 are those with a lower percentage of firms with a positive and statistically significant effect on the independent variable. Thus, the returns of the companies included in sectors and are more strongly affected by the variations in the market returns. The interest rate has a similar impact in all sectors. Sectors and 5 show greater sensitivity to changes in interest rates. Within each sector, there are some companies with a positive sign and others with a negative sign, although the direct relationship predominates in both sectors. 48

13 Sevillano, M.C., Jareño, F. The Impact Of International Factors On The Returns Of Ibex 5 Companies Table 5. Sensitivity of the IBEX 5 companies to changes in market returns (MR), interest rates (IR), oil price (OIL), VIX and CFSI: Sectoral analysis Percentage of companies with significant exposure MR Significant (%) 4 Significant (5%) Significant (0%) No Significant Sector : Oil and Energy 4/6 (66,7%) 4/6 (66,7%) 5/6 (8,%) /6 (6,7%) Sector : Basic Materials, Industry /0 (0%) /0 (0%) 4/0 (40%) 6/0 (60%) and Construction Sector : Consumer Goods / (00%) Sector 4: Consumer Services /6 (6,7%) /6 (, %) /6 (,%) 5/7 (7,4%) Sector 5: Financial and Real Estate / (,%) / (,%) / (,%) 7/ (77,8%) Services Sector 6: Technology and Telecom. - / (,%) / (66,7%) / (66,7%) IR Sector : Oil and Energy /6 (6,7%) /6 (, %) 4/6 (66,6%) /6 (,%) Sector : Basic Materials, Industry 5/0 (50%) 8/0 (80%) /0 (0%) /0 (0%) and Construction Sector : Consumer Goods / (00%) Sector 4: Consumer Services - /6 (6,7%) /6 (,%) 4/6 (66,7%) Sector 5: Financial and Real Estate / (,%) 5/ (55,5%) 7/ (77,8%) / (,%) Services Sector 6: Technology and Telecom. / (66,7%) / (66,7%) / (66,7%) / (,%) OIL Sector : Oil and Energy /6 (6,7%) /6 (6,7%) /6 (, %) 4/6 (66,7%) Sector : Basic Materials, Industry /0 (0%) /0 (0%) 4/0 (40%) 6/0 (60%) and Construction Sector : Consumer Goods / (00%) Sector 4: Consumer Services - /6 (6,7%) /6 (6,7%) 5/7 (7,4%) Sector 5: Financial and Real Estate Services - / (,%) / (,%) 8/ (88,) Sector 6: Technology and Telecom VIX Sector : Oil and Energy /6 (,%) /6 (50%) 4/6 (66,7 %) /6 (,%) Sector : Basic Materials, Industry and /0 (0%) 4/0 (40%) 6/0 (60%) 4/0 (40%) Construction Sector : Consumer Goods / (00%) Sector 4: Consumer Services - /6 (6,7%) 4/6 (66,7%) /6 (,%) Sector 5: Financial and Real Estate Services / (,%) / (,%) 4/ (44,4%) 5/ (55,6%) Sector 6: Technology and Telecommunications CFSI / (00%) Sector : Oil and Energy /6 (6,7%) /6 (,%) /6 (50 %) /6 (50%) Sector : Basic Materials, Industry and /0 (0%) 7/0 (70%) /0 (0%) /0 (0%) Construction Sector : Consumer Goods - / (00%) / (00%) - Sector 4: Consumer Services - /6 (,)% /6 (50%) /6 (50%) Sector 5: Financial and Real Estate Services - / (,%) 4/ (44,4%) 5/ (55,6%) Sector 6: Technology and Telecommunications / (,%) / (,%) / (,%) / (66,7%) Source: Own preparation based on EViews results

14 Applied Econometrics and International Development Vol. 7- (07) In contrast to the interest rate, the oil price does not show a significant correlation with corporate returns; therefore, we do not emphasize any sectoral behavior. In fact, although all sectors show some sensitivity to this variable, only sectors and 6 experience a greater effect of this factor. The sectoral sign is different. While sector shows a predominantly negative impact, other sectors (, 4, 5 and 6) show a positive effect. Therefore, once again, construction companies, such as Acciona and ACS, show negative sensitivity. This is more than logical because these companies strongly depend on the fuel price, so a rise would negatively affect their returns. Regarding VIX, sector is again one of the sectors experiencing the greatest negative effect. In fact, this explanatory factor shows an important impact in all sectors except and 6. Thus, these sectors are not influenced by the volatility index, and therefore, the expectations are not so relevant for them. In contrast, if we examine more deeply the behavior by sector, sectors and 5 are those that present more significant sensitivity to variations in this index. It is no coincidence that the financial sector is one of the sectors that have a greater impact on this index. This is precisely constructed to analyze the volatility in the financial market, so it is expected to have an impact on it. Finally, it should be noted that the six sectors in which the 5 companies are classified have a negative impact on the CFSI. However, only sector accounts for a considerable percentage, indicating that the sector suffers greater variations to changes in the financial stress index. According to the level of significance, sector shows the greatest sensitivity to changes in this explanatory factor. 4.. Analysis by subperiod This sub-section explores the effect of the economic crisis on the relationship between the individual stock returns of the companies listed in the IBEX 5 index and the five explanatory variables. Thus, the sample is split into three different sub-periods: pre-crisis (January 000-July 007), crisis (August 007-December 00) and postcrisis (January 0-April 06). The difference between the first two sub-periods marks the beginning of the financial crisis. Although one of the key events to determine the beginning of the crisis is the fall of Lehman Brothers in September 008, financial problems related to subprime mortgages started to surface in the summer of 007. In fact, the panic and mistrust in the financial markets began at that time and ended with the collapse of the fourth largest investment bank in the United States (Ferrando et al., 05). To analyze the effect before the financial turbulence, July 007 is considered the end date of the first period, and August of that same year is considered the beginning of the economic recession and thus the beginning of the second period analyzed. The third important date that is highlighted is December 00. This year is considered a turning point. In fact, in the World Economic Outlook (00) report, the International Monetary Fund (IMF) defends a general but uneven recovery between, on 50

15 Sevillano, M.C., Jareño, F. The Impact Of International Factors On The Returns Of Ibex 5 Companies the one hand, more developed economies and, on the other hand, emerging economies and developing countries. Table 6 shows the results of the sensitivity of stock returns to variations in the different explanatory factors for the three sub-periods described. The sensitivity of the stock returns of IBEX 5 companies to changes in market returns remains virtually constant in all periods. Apparently, the impact of this independent variable on individual stock returns does not change with respect to the economic situation. However, in the crisis period, the effect is slightly intensified, and there is a slightly greater percentage of companies that present statistically significant sensitivity. Beyond the prior conclusions, a positive relation between the variables predominates, independently of the stage of the economic cycle. Second, the interest rate shows the greatest neutrality to the economic situation. Thus, this analysis by sub-period does not seem to provide additional information about this sensitivity. In fact, the percentage of companies with significant sensitivity remains the same over the three periods. Thus, the number of companies that experience a positive and negative impact during the three subsamples remains constant, with the positive sign predominating. Moreover, the analysis by sub-period indicates that the sign seems not to depend on either the sector to which the company belongs or of the stage of the economic cycle. As previously said, the main reason for the analysis by sub-period is to examine the relations between the explanatory variables and the explained variable. Specifically, in the case of the interest rate, a greater precision in the presentation of results is required. In the general analysis (January 000-April 06), there is a high percentage of companies that show a positive relation, which contrasts with the conclusions of other previous studies, such as Ferrando et al. (05) and Jareño (008); however, by dividing the sample period, the results reveal much richer conclusions. There are several companies that in do not present significant sensitivity in any subperiod, but they do when the whole period is analyzed. The most representative example is Inditex (positive relation). Other companies, on the other hand, show the same effect in the three sub-periods, as in the case of Acerinox and Sacyr (positive relation). Most of the companies that show a negative correlation with the interest rate are those in which only a specific sub-period can be analyzed due to the lack of data, such as Aena and Bankia. Furthermore, there are some companies that alternate negative and positive relations according to the period, such as Técnicas Reunidas, which shows a negative sign for the first sub-period and a positive sign in the other two sub-periods. Third, the oil price results follow the same line as those related to the market return. As the first independent variable analyzed, the oil price also has a greater impact on the returns of the IBEX 5 companies in the crisis period. In this case, the effect of the recession is much stronger, as it is the only sub-period that presents statistically significant sensitivity to this variable. In addition, the sign is positive. Thus, companies such as Enagás, OHL and Red Eléctrica Corporación show statistically significant sensitivity only in this period of crisis. 5

16 Applied Econometrics and International Development Vol. 7- (07) Table 6. Sensitivity of the IBEX 5 companies to changes in market returns (MR), interest rates (IR), oil price (OIL), VIX and CFSI: Analysis by subperiod Percentage of companies with significant exposure SUB-PERIODS PRE CRISIS CRISIS POST CRISIS MR % 5% 0% % 5% 0% % 5% 0% Significant sensitivity 5 (4,%) 7 (0%) 0 (8,6%) 8 (,8%) (4,%) 4 (40%) 4 (,4%) 7 (0%) 0 (8,6%) Positive sensitivity 5 (4,%) 6 (7,%) 7 (0%) (,4%) (7,%) 4 (,4%) 7 (0%) 0 (8,6%) Negative sensitivity - (,8%) (,8%) (,8%) (,8%) (,8%) IR % 5% 0% % 5% 0% % 5% 0% Significant sensitivity Positive sensitivity 5 (4,%) 5 (4,%) Negative sensitivity - 8 (,8%) (,%) (,4%) 0 (8,6%) (,%) (8,6%) (8,6%) 0 (8,6%) 0 (,%) (4,%) (,4%) (,%) (8,6%) (,%) 8 (,8%) (,%) (,4%) OIL % 5% 0% % 5% 0% % 5% 0% Significant sensitivity - Positive sensitivity - Negative sensitivity - (,8%) 0 (,8%) (,8%) (8,6%) (8,6%) (8,6%) (8,6%) (,8%) (,8%) (,8%) CFSI % 5% 0% % 5% 0% % 5% 0% Significant sensitivity Positive sensitivity Negative sensitivity 6 (7,%) (,4%) (,8%) 4 (,4%) 0 0 (,8%) (7,%) 0 (8,6%) (,8%) 4 (,4%) VIX % 5% 0% % 5% 0% % 5% 0% Significant sensitivity 6 (7,%) 7 (0%) (,8%) (8,6%) 7 (0%) (4,%) Positive sensitivity Negative sensitivity 6 (7,%) Source: Own preparation based on EViews results 7 (0%) (,8%) (8,6%) 7 (0%) (4,%) 5

17 Sevillano, M.C., Jareño, F. The Impact Of International Factors On The Returns Of Ibex 5 Companies In contrast to previous results, company returns show neutrality to changes in the CFSI in periods of the recession. In this case, therefore, the economic situation is decisive. Another notable issue is the sign of the relationship between the companies' returns and the CFSI, which is negative in almost all cases. These results contrast with the conclusions of Bianconi et al. (0). In their study, they found that the economic crisis is a crucial factor, so there is a greater effect of the financial tension after the outbreak of the crisis, the opposite of what is presented in this research. The possible cause of these conflicting results is the fact that while the present study used as a financial stress index the CFSI, Bianconi et al. (0) used the VIX index. Despite the relationship between the CFSI and VIX variables highlighted in the literature review, the results shown in this analysis by sub-period do not coincide. Faced with the null sensitivity of the companies to the CFSI in the crisis period, the effect of the VIX remains unchanged in the three sub-periods analyzed. However, both explanatory variables show a negative relation between them and the companies returns. 5. Concluding Remarks The main objective of the study is to determine the effect of each explanatory variable analyzed on the stock returns of the companies currently listed in the Spanish IBEX 5 index. Specifically, relevant international economic and financial factors are analyzed, such as the US stock market return, the US interest rate, the crude oil price, the CFSI financial stress index and the VIX volatility index. On one hand, the results show a significant percentage of companies with statistically significant and positive sensitivity to market returns. Therefore, the returns of these 5 Spanish companies react according to the mean variation of the 500 companies listed on the New York Stock Exchange, which is the largest electronic stock market (by trading volume) in the United States (NASDAQ). In addition, the economic situation does not seem to be decisive in the sign of the effect of this factor. On the other hand, the effect of the oil price depends on the stage of the economic cycle. Although the oil price does not appear to be a decisive factor in the variability of corporate returns, companies are affected by this factor only during the crisis. This seems to show that Spanish companies are not dependent on this fuel because despite the fall in the oil price with the fall of Lehman Brothers which was maintained until 0, when there was an increase in demand in China and India individual stock returns did not benefit from this reduction in the crude oil price but rather showed a predominantly positive sensitivity to this variable. Although both CFSI and VIX adversely affect stock returns, the influence of the economic crisis is different in each case. On one hand, in bad economic stages, the impact of the CFSI is cancelled out. On the other hand, the effect of the VIX on the variability of stock returns remains practically unchanged throughout the whole sample period. The negative effect of these two indexes is more than logical, since a rise in their values determines an increase of the financial stress (in the case of CFSI) or of the volatility (in the case of VIX) in the stock market. This effect certainly has a negative 5

18 Applied Econometrics and International Development Vol. 7- (07) impact on the stock price. Investors are largely concerned with these indicators, as they anticipate the market evolution and therefore create expectations. These expectations are those that have a certain impact on the variability in companies returns, so these are factors to be considered. Finally, undoubtedly, the results obtained with respect to the interest rate are the most controversial, since they contrast with the conclusions gathered in previous studies (negative impact). The present study concludes that there is no single effect of the interest rate on corporate returns. The main justification for this discrepancy in the results is the fact that this research does not analyze the effect of the national interest rate on the national financial market, but the reference interest rate is international. The results may indicate that if the US interest rate increases, the stock price will fall in this country; therefore, US stocks will become less attractive, and the international opening of markets will make investors decide to invest in other, more cost-effective markets. References Ballester, L. Román Ferrer, R. and González, C. (00). Linear and nonlinear interest rate sensitivity of Spanish banks. The Spanish Review of Financial Economics, (): Bartram, S. (00). The Interest Rate Exposure of Nonfinancial Corporations. Review of Finance, 6(): 0-5. Bianconi, M; Yoshino, J. and Machado de Sousa, M. (0). BRIC and the U.S. financial crisis: An empirical investigation of stock and bond markets. Emerging Markets Review 4: Cano, C., Jareño, F. and Tolentino, M. (06). Investor Behavior and Flow-through Capability in the US Stock Market. Frontiers in Psychology, 7 (668): -. Cano, C.and Jareño, F. (04). Capacidad de absorción de la inflación y su efecto sobre el precio de las acciones: una revisión de la literatura. Perspectiva Empresarial, (): Chicago Board Options Exchange. (06). Retrieved April, 06, from Ciner, C. (00). Energy shocks and financial markets: nonlinear linkages. Studies in Non-Linear Dynamics and Econometrics 5 (): 0. Cong, R.; Wei, Y., Jiao, J.and Fan, Y. (008). Relationships Between Oil Price Shocks and Stock Market: An Empirical Analysis From China. Energy Policy, 6 (): Cunado, J. P. (005). Oil prices, economic activity and inflation: evidence for some Asian countries. Quarterly Review of Economics and Finance, 45 (): Czaja, M.; Scholz, H. and Wilkens, M. (00). Interest Rate Risk Rewards In Stock Returns of Financial Corporations: Evidence From Germany. European Financial Management, 6(),

19 Sevillano, M.C., Jareño, F. The Impact Of International Factors On The Returns Of Ibex 5 Companies Fama, E. and French, K. (). The Cross-Section of Expected Stock Returns. The Journal of Finance, 47 (): Fama, E. and French, K. (05). A five-factor asset pricing model. Journal of Financial Economics, 6(): -. Federal Reserve Bank of Cleveland (06). Retrieved April,, 06, from Federal Reserve Bank of St Louis (06). Retrieved April,, 06, from Ferrando, L.; Ferrer, R. and Jareño, F. (06). Interest rate sensitivity of spanish industries: A cuantile regression aproach, The Manchester School, forthcoming. International Monetary Fund (00). World Economic Outlook. Washington: World Economic Outlook. Invertia (06). Retrieved April,, 06, from Jakobsen, S. (06). Saxo Group. Retrieved April,, 06, from Jareño, F. (005). Flow-through capability: the Spanish case. Journal of Asset Management, 6 (): -05. Jareño, F. (006). Modelos de estudio del riesgo de interés e inflación. Estrategia Financiera, : Jareño, F. (006). Sensibilidad de los rendimientos sectoriales a tipos de interés reales e inflación. Investigaciones Económicas, 0 (): Jareño, F. (008). Spanish stock market sensitivity to real interest and inflation rates: an extension of the Stone two-facor model with factors of Fama and French three-factor model. Applied Economics, 40 (4): 5-7. Jareño, F. and Navarro, E. (00). Stock interest rate risk and inflation shocks. European Journal of Operational Research, 0 (): Memmel, C. (0). Banks exposure to interest rate risk, their earnings from term transformation and the dynamics of term structure. Journal of Banking & Finance, 5 (): 8-8. Moya-Martínez, P. Ferrer-Lapeña, R. and Escribano-Sotos, F. (05). Interest rate changes and stock returns in Spain: A wavelet analysis. Business Research Quarterly, 8 (): 5-0. Moya-Martínez, P.; Ferrer, R. and Escribano Sotos, F. (0). Oil price risk in the Spanish stock market: An industry perspective. Economic Modelling, 7:

20 Applied Econometrics and International Development Vol. 7- (07) Ohmi, H. and Okimoto, T. (05). Trends in Stock-Bond Correlations. RIETI Discussion Paper Series 5-E-5. Park, J. and Ratti, R. (007). Oil price shocks and stock markets in the US and European countries. Missouri: Department of Economics, University of Missouri-Columbia. S. Pita and S. Pértega. (7). Relación entre variables cuantitativas. Unidad de Epidemiología Clínica y Bioestadística. A Coruña: Complexo Hospitalario Juan Canalejo. Shamsuddin, A. (04). Are Dow Jones Islamic equity indices exposed to interest rate? Economic Modelling, : 7-8. Soto, G.; Ferrer, R. and González, C. (005). Determinants of interest rate sposure of Spanish non-financial firms. European Review of Economics, 4 (): Stone, B. K. (74). Systematic Interest-Rate Risk in a Two-Index Model of Returns. Journal of Financial and Quantitative Analysis, (5): Tessaromatis, N. (00). Stock Market Sensitivity to Interest Rates and Inflation. EFMA. Treasury (06). Retrieved April,, 06, from Yahoofinance (06). Retrieved April,, 06, from Journal published by the EAAEDS: 56