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Expected Inflation, Expected Stock Returns, and Money Illusion: What can we learn from Survey Expectations? Author info | Abstract | Publisher info | Download info | Related research | Statistics Maik Schmeling
Andreas Schrimpf
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We show empirically that survey-based measures of expected inflation are significant and strong predictors of future aggregate stock returns in several industrialized countries both in-sample and out-of-sample. By empirically discriminating between competing sources of this return predictability by virtue of a comprehensive set of expectations data, we find that money illusion seems to be the driving force behind our results. Another popular hypothesis - inflation as a proxy for aggregate risk aversion - is not supported by the data.
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number
SFB649DP2008-036.
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Length: 41 pages
Date of creation: May 2008Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2008-036Contact details of provider: Postal: Spandauer Str. 1,10178 Berlin Phone: +49-30-2093-5708 Fax: +49-30-2093-5617 Email: Web page: http://sfb649.wiwi.hu-berlin.de More information through EDIRC
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Keywords: Inflation expectations ; Money Illusion ; Proxy hypothesis ; Stock returns ; Other versions of this item:
Find related papers by JEL classification: G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data) G12 - Financial Economics - - General Financial Markets - - - Asset Pricing E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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