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 0311007.
Date of creation: 12 Nov 2003
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Stock prices; inflation; Fisher effect; neutrality; cointegration.;
Other versions of this item:
- James R. Lothian & Cornelia H.. McCarthy, 2001. "Equity Returns and Inflation: The Puzzlingly Long Lags," International Finance 0107003, EconWPA.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-16 (All new papers)
- NEP-FIN-2003-11-16 (Finance)
- NEP-MAC-2003-11-16 (Macroeconomics)
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