Inflation and bond-stock characteristics of international security returns
Purpose – The purpose of this research is to explain the cross-sectional variation in the relation between international security returns and expected inflation based on their sensitivities to world stock and bond factors. Design/methodology/approach – The paper shows regress inflation sensitivities of returns on country indexes and international mutual funds on their sensitivities to world stock and bond indexes. Findings – This paper shows the inflation sensitivity of a security is positively (negatively) related to its sensitivity to the world bond index (world stock index). Research limitations/implications – The paper shows that while the model is applicable to individual securities as well as portfolios, it is tested using portfolios only. Originality/value – The paper shows the results allow one to assess the inflation sensitivity of a security using its sensitivity to the bond and the stock market. The more bond-like a security is, the higher its sensitivity to inflation.
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Volume (Year): 2 (2006)
Issue (Month): 3 (September)
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