Extracting Inflation from Stock Returns to test Purchasing Power Parity
AbstractWe provide a novel method for extracting estimates of realized pure price inflation from stock returns. The key is recognizing that pure price inflation should aÂ®ect nominal returns of all traded assets by exactly the same amount. The popular Fama- French three-factor model is employed to purge stock returns of real economic factors. We uncover evidence that purchasing power parity holds quite well using the extracted inflation measures.
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Bibliographic InfoPaper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number qt0sx3x482.
Date of creation: 20 Jun 2002
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- Hau, Harald & Rey, Hélène, 2003.
"Exchange Rates, Equity Prices and Capital Flows,"
CEPR Discussion Papers
3735, C.E.P.R. Discussion Papers.
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