This paper identifies the systematic risk factors for the Australian stock market by applying the cointegration technique of Johansen. In conformity with the finance literature and investors’ common intuition, relevant a priori variables are chosen to proxy for Australian systematic risk factors. The results show that only a few systematic risk factors are dominant for Australian stock market price movements in the long-run while short-run dynamics are in place. It is observed that the linear combination of all a priori variables is cointegrated although not all variables are significantly influential. The findings show that bank interest rate, corporate profitability, dividend yield, industrial production and, to a lesser extent, global market movements are significantly influencing the Australian stock market returns in the long-run; while in the short-run it is being adjusted each quarter by its own performance, interest rate and global stock market movements of previous quarter.



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