IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v68y2023ics1062940823001092.html
   My bibliography  Save this article

Inflation risk and stock returns: Evidence from US aggregate and sectoral markets

Author

Listed:
  • Chiang, Thomas C.
  • Chen, Pei-Ying

Abstract

This study examines the relation between inflation risk and stock returns and finds a negative relation in US aggregate data. A comparable result is found in other G7 economies. Introducing the inflation-induced equity market volatility as an incremental variable consistently produces a negative effect on stock returns. The same finding holds true for monetary policy uncertainty, which also produces a negative relation. Ignoring these two elements will produce a biased estimator of inflation’s effect on stock returns. Testing of sectoral stocks in the US market indicates that most sectors find a significant number of sectors exhibit negative inflation coefficients, confirming the Fama proxy hypothesis. The exception is the energy sector that presents a positive sign, indicating a hedging capacity against inflation. Including the interacting term between a change in monetary policy uncertainty and lagged equity market volatility, the evidence suggests an enhanced negative effect on stock returns.

Suggested Citation

  • Chiang, Thomas C. & Chen, Pei-Ying, 2023. "Inflation risk and stock returns: Evidence from US aggregate and sectoral markets," The North American Journal of Economics and Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:ecofin:v:68:y:2023:i:c:s1062940823001092
    DOI: 10.1016/j.najef.2023.101986
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062940823001092
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.najef.2023.101986?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Stock return; Inflation; Monetary policy uncertainty; Fisher hypothesis; Equity market volatility;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:68:y:2023:i:c:s1062940823001092. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.