Equity Returns and Inflation: The Puzzlingly Long Lags
AbstractThis paper examines data for stock prices and price levels of 14 developed countries during the post-WWII era and compares their behavior in that sample with behavior over the past two centuries in the UK and the US. Contrary to much of the literature of the past several decades, we find that nominal equity prices do, in fact, keep pace with movements in the overall price level. Our results suggest, however, that this is only the case over long periods. The puzzle therefore is not that equities fail the test as inflation hedges, as had been quite widely believed, but that they take so long to pass.
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Bibliographic InfoPaper provided by EconWPA in its series International Finance with number 0107003.
Length: 25 pages
Date of creation: 31 Jul 2001
Date of revision:
Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP Deskjet 950C; pages: 25; figures: included . This draft May 2001; first draft December 1997
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Stock prices; inflation; Fisher effect; neutrality; cointegration; Equity Returns; Inflation ; Long Lags;
Other versions of this item:
- James R. Lothian & Cornelia H. McCarthy, 2003. "Equity Returns and Inflation: The Puzzlingly Long Lags," International Finance 0311007, EconWPA.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-08-15 (All new papers)
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