Removing Effect of Macroeconomic Variables from Time Series

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Removing Effect of Macroeconomic Variables from Time Series

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Dear All
This question may sound weakly relevant/rudimentary in this group but any help would be invaluable. I am trying to modify a time series of market volume/trading etc. data and would like to remove the effect of macroeconomic variables like interest rates and inflation removed. 
Could someone please advise how is this performed?
Regards,Pankaj K Agarwal
+91-98397-11444http://in.linkedin.com/in/pankajkagarwal/
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Re: Removing Effect of Macroeconomic Variables from Time Series

Ajay Shah
There is one reasonably well established concept, of "augmented market
models" that are used to purge stock returns of the effects of the stock
market, the exchange rate, etc.

The R package for event studies <https://github.com/nipfpmf/eventstudies>
has a function lmAMM() which does this carefully, e.g. as shown in Patnaik
& Shah 2010
<http://macrofinance.nipfp.org.in/PDF/does-the-currency-regime-shape-unhedged-currency-exposure.pdf>.
Please be sure to fully understand and utilise the capabilities in makeX()
which has to be run before you get to lmAMM(). Many experienced researchers
have difficluties in published papers on these things, and wider use of
these concepts and the package will help.

The paper and package are written around *stock returns ~ market index +
exchange rate*. But the ideas and code are general and can be applied in
many other ways. Please do tell us about your experiences.

--
Ajay Shah
[hidden email]
http://www.mayin.org/ajayshah

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