William N. Goetzmann
Caesar Gonzalez-Bueno
Roger Ibbotson

Spanish stocks are found to respond to five variables, the Madrid stock exchange itself, inflation, the 30 day inter-bank rate, medium-term government bond yields and deseasonalized changes in industrial production. This information is used to build a prediction model of stock movements.

We find that the returns in several major industrial sectors, including Banks, Utilities, Automobile and Chemical, are well described by the model. Further tests show this model to be valid for use in forecasting, and superior to a model using only the stock market as a factor.