Natural Phenomena and Human Economic Behavioral Influence in Multi-Factor Predictive Modeling

Abstract

This research investigates the impact of human economic behavioral activity and the Earth’s magnetic field in the area of financial economics using the Fama-French 3-Factor Model as a test subject. The research objective is to test whether human economic and geomagnetic activity could improve quantifiable estimated outputs in the Fama-French Model—and to discover if there are any relationships with these variables that could have a profound influence in predicting financial market or economic activity. After reviewing all data and research approaches, the concluding analysis indicates that geomagnetic activity does not have strong enough influence to reasonably predict equity and fund returns. For human economic behavior, the absolute change in Money Velocity and U-3 Unemployment improves the original Fama-French 3-Factor Model by nearly 3% and outpaces the 5-Factor model under an array of tests. Keywords for this research are: (i) Financial Economics, (ii) Quantitative Methodology, (iii) Investment Portfolio Management, (iv) Geophysics, and (v) Machine Learning. Research supervision was directed under Muhammet Bas, Ph.D. at the Department of Government, Harvard University Graduate School of Arts and Sciences.