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Evidence On The Existence Of Common Stock Inflation Hedges

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  • Victor L Bernard
  • Thomas J. Frecka

Abstract

Previous researchers have been unable to identify (on an ex ante basis) inflation hedge portfolios consisting of common stocks. This study demonstrates a procedure for forming common stock portfolios that offer returns that vary positively with unexpected inflation. The strategy could have been used to hedge against purchasing power risk during the 1974–1979 period. In addition to its practical value, the research has important implications for capital asset pricing theory since the existence of hedge portfolios is a necessary condition for the superiority of the multi-period CAPM over the single-period models.

Suggested Citation

  • Victor L Bernard & Thomas J. Frecka, 1983. "Evidence On The Existence Of Common Stock Inflation Hedges," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 6(4), pages 301-312, December.
    • Handle: RePEc:bla:jfnres:v:6:y:1983:i:4:p:301-312
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    File URL: http://hdl.handle.net/10.1111/j.1475-6803.1983.tb00340.x
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    References listed on IDEAS

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    1. Nelson, Charles R, 1976. "Inflation and Rates of Return on Common Stocks," Journal of Finance, American Finance Association, vol. 31(2), pages 471-483, May.
    2. James S. Ang & Jess H. Chua & Anand S. Desai, 1979. "Evidence That The Common Stock Market Adjusts Fully For Expected Inflation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 2(2), pages 97-109, September.
    3. Boonekamp, C F J, 1978. "Inflation, Hedging, and the Demand for Money," American Economic Review, American Economic Association, vol. 68(5), pages 821-833, December.
    4. Schipper, Katherine & Thompson, Rex, 1981. "Common Stocks as Hedges against Shifts in the Consumption or Investment Opportunity Set," The Journal of Business, University of Chicago Press, vol. 54(2), pages 305-328, April.
    5. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    6. Bruce K. Gouldey, 1980. "Evidence Of Nonmarket Risk Premiums In Common Stock Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 3(3), pages 243-260, September.
    7. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-282, June.
    8. Sercu, Piet, 1981. "A Note on Real and Nominal Efficient Sets," Journal of Finance, American Finance Association, vol. 36(3), pages 721-737, June.
    9. Bodie, Zvi, 1976. "Common Stocks as a Hedge against Inflation," Journal of Finance, American Finance Association, vol. 31(2), pages 459-470, May.
    10. Jaffe, Jeffrey F & Mandelker, Gershon, 1976. "The "Fisher Effect" for Risky Assets: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 31(2), pages 447-458, May.
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    Cited by:

    1. Mohammad Najand, 1991. "A Test Of The Risk Premium Hypothesis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(3), pages 207-216, September.
    2. Michael Devaney & William Rayburn, 1988. "When a House Is More Than a Home: Performance of the Household Portfolio," Journal of Real Estate Research, American Real Estate Society, vol. 3(1), pages 75-85.
    3. Michael Devaney & William Rayburn, 1993. "Neighborhood Racial Transition and Housing Returns: A Portfolio Approach," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 239-252.
    4. Valadkhani, Abbas & Nguyen, Jeremy & Chiah, Mardy, 2022. "When is gold an effective hedge against inflation?," Resources Policy, Elsevier, vol. 79(C).
    5. Harsh Parikh & Rama K. Malladi & Frank J. Fabozzi, 2020. "Preparing for higher inflation: Portfolio solutions using U.S. equities," Review of Financial Economics, John Wiley & Sons, vol. 38(3), pages 542-554, July.

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