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Are equities good inflation hedges? A frequency domain perspective

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  • Ciner, Cetin

Abstract

By using industry level data, we examine the relation between equity returns and inflation in a frequency dependent framework. Our analysis shows that a positive relation in fact exists between equity returns and high frequency inflation shocks for commodity and technology related industries. Since higher frequency shocks are independent from trend and are transitory in nature, our findings imply a positive relation between stock returns and the unexpected component of inflation. Furthermore, we show that the results are robust to firm-level data by using a sample from the oil industry. Hence, our study provides a new look at the impact of inflation on equities by showing the sensitivity of conclusions in prior work to frequency dependence in data.

Suggested Citation

  • Ciner, Cetin, 2015. "Are equities good inflation hedges? A frequency domain perspective," Review of Financial Economics, Elsevier, vol. 24(C), pages 12-17.
  • Handle: RePEc:eee:revfin:v:24:y:2015:i:c:p:12-17
    DOI: 10.1016/j.rfe.2014.12.001
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    References listed on IDEAS

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    Keywords

    Inflation; Stock returns; Frequency domain;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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