I have some macro factors such as the US GDP, Inflation, Foreign Exchange, and global MSCI stock index. Are there going to be reasonable estimates, should I include/exclude something?
Also, regarding the security specific factors, which confuses the most. I have an idea of including such factors as price/sales, price/book, dividend/price, EV/EBITDA, EV/FCF, EV/IC? Are there preferred for APT model? Many thanks.
P/S: I am considering single stock (Apple) APT model.
Macro factors consider - US GDP and Inflation
Company specific consider - P/E and EPS
I assume you want to run a time series regression of Apple returns on your factors, possibly to see whether Apple outperforms the model you are using (i.e., to see whether the alpha - the regression intercept - is significantly different from zero). If this is the objective I would not set up a new model but rather use one of the standard models from the literature (specifically, I would use Carhart and the Fama and French 5-factor model). If you use your own model, you will always have to jutsify your choices, and in fact referees are likely to ask you to estimate Carhart or the 5-factor model anyway.
If the purpose of your study is different, please explain the context of your analysis.
Thanks for your answer. Yes, I want to run a time series regression of Apple returns on these macro and micro factors. Actually, yes, I could use ready models of Fama & French or even CAPM instead of APT model which would be more convenient for valuation. But the idea is to use APT and construct a new model using the most relevant factors. Probably, it would be better, if we include more factors especially, security specific. Point is here to apply multiple linear regression model in finance, so everything here is in educational purposes.
P/S: I think, these multiples including price (P/B, P/E etc.) are not that much relevant as the subject of this model is return on this price from which I could theoretically predict the price. Maybe, I should look at operating activities instead of emphasizing on price itself. For instance, sales, R&D, FCF, net income, eps etc? Sorry for many words:)
Thanks
Because your objective is to create a brand new model, please consider (1) U.S. interest rate, exchange rate and the S&P 500 Stock Index as the macro-variables and (2) R&D Expenditures, Free Cash Flow and Sales as security specific factors. These seem to be close drivers of the Apple stock.