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Capital Gains, Dividend Yields, and Expected Inflation

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  • Eugene A. Pilotte

    (Rutgers University, School of Business Camden)

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    Abstract

    One explanation for the negative relationship between short-horizon stock returns and inflation is that inflation proxies (inversely) for expected future real output. In this paper, I examine the possibility that inflation also proxies for variation in real price/dividend ratios (excess returns). I show that when the covariance between real price/dividend ratios and inflation is nonzero, the relationship between returns and expected inflation differs for the two components of returns: dividend yields and capital gains returns. My empirical evidence demonstrates that dividend yields and capital gains are related differently to expected inflation in U.S. and foreign markets. Copyright 2003 by the American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 58 (2003)
    Issue (Month): 1 (02)
    Pages: 447-466

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    Handle: RePEc:bla:jfinan:v:58:y:2003:i:1:p:447-466

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    Cited by:
    1. Schmeling, Maik & Schrimpf, Andreas, 2011. "Expected inflation, expected stock returns, and money illusion: What can we learn from survey expectations?," European Economic Review, Elsevier, vol. 55(5), pages 702-719, June.
    2. Martin Hoesli & Colin Lizieri & Bryan MacGregor, 2008. "The Inflation Hedging Characteristics of US and UK Investments: A Multi-Factor Error Correction Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 36(2), pages 183-206, February.
    3. Shaun K. Roache & Alexander P. Attie, 2009. "Inflation Hedging for Long-Term Investors," IMF Working Papers 09/90, International Monetary Fund.

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