Generalized Fama proxy hypothesis: Impact of shocks on Phillips curve and relation of stock returns with inflation
A generalized version of Fama's proxy hypothesis identifies a downward bias in Phillips curve estimations. The (spurious) negative relation between real stock returns and inflation emerges if output rate fluctuations dominate cyclical component fluctuations of a Lucas-type Phillips curve.
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- Kaul, Gautam, 1990. "Monetary Regimes and the Relation between Stock Returns and Inflationary Expectations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(03), pages 307-321, September.
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