Stock returns and expected inflation: evidence from an asymmetric test specification

Stock returns and expected inflation: evidence from an asymmetric test specification Previous studies that examined the relationship between stock returns and inflation have used a symmetric test specification, and have reported evidence of an inverse relation. We use an asymmetric model to re-examine this fundamental relationship between stock returns and inflation. We partition the study period into sub-samples of high and low inflation regimes. An inverse relation between stock returns and inflation forecasts is found during only low inflation periods, while a positive relation is detected through high inflation periods. In combination, results from both high and low inflation regimes suggest that stocks have delivered favorable inflation protection. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Stock returns and expected inflation: evidence from an asymmetric test specification

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Publisher
Springer US
Copyright
Copyright © 2007 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-007-0060-9
Publisher site
See Article on Publisher Site

Abstract

Previous studies that examined the relationship between stock returns and inflation have used a symmetric test specification, and have reported evidence of an inverse relation. We use an asymmetric model to re-examine this fundamental relationship between stock returns and inflation. We partition the study period into sub-samples of high and low inflation regimes. An inverse relation between stock returns and inflation forecasts is found during only low inflation periods, while a positive relation is detected through high inflation periods. In combination, results from both high and low inflation regimes suggest that stocks have delivered favorable inflation protection.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 2, 2007

References

  • Stock prices and inflation: new evidence from the Pacific-Basin countries
    Al-Khazali, O; Chong Soo, P

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