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Inflation and Individual Equities

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  • Andrew Ang
  • Marie Brière
  • Ombretta Signori

Abstract

We study the inflation hedging ability of individual stocks. While the poor inflation hedging ability of the aggregate stock market has long been documented, there is considerable heterogeneity in how individual stock returns covary with inflation. Stocks with good inflation-hedging abilities since 1990 have had higher returns, on average, than stocks with low inflation betas and tend to be drawn from the Oil and Gas and Technology sectors. However, we show that there is substantial time variation of stock inflation betas. This makes it difficult to construct portfolios of stocks that are good inflation hedges out of sample. This is true for portfolios constructed on past inflation betas, sector portfolios, and portfolios constructed from high-paying dividend stocks.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17798.

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Date of creation: Feb 2012
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Handle: RePEc:nbr:nberwo:17798

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  1. Signori, Ombretta & Brière, Marie, 2012. "Inflation-Hedging Portfolios : Economic Regimes Matter," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/9296, Université Paris-Dauphine.
  2. Jonathan Lewellen & Stefan Nagel, 2003. "The Conditional CAPM does not Explain Asset-Pricing Anamolies," NBER Working Papers 9974, National Bureau of Economic Research, Inc.
  3. Dennis Kristensen & Andrew Ang, 2009. "Testing Conditional Factor Models," CREATES Research Papers 2009-09, School of Economics and Management, University of Aarhus.
  4. John H. Boyd & Bruce Champ, 2006. "Inflation, banking, and economic growth," Economic Commentary, Federal Reserve Bank of Cleveland, issue May 15.
  5. Bharat Kolluri & Mahmoud Wahab, 2008. "Stock returns and expected inflation: evidence from an asymmetric test specification," Review of Quantitative Finance and Accounting, Springer, vol. 30(4), pages 371-395, May.
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