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Stock returns and inflation risk: economic versus statistical evidence

  • Tomek Katzur
  • Laura Spierdijk
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    A widespread assumption in the economic literature is that an asset is a good hedge against inflation if the Fisher hypothesis holds, that is, if nominal asset returns move in parallel with expected inflation. We propose a new measure for assessing the inflation risk exposure of an asset. This measure reflects the economic influence of inflation rates on asset returns in a context of portfolio optimization and accounts for parameter uncertainty. We show that the economic significance of the influence of expected inflation on stock returns can be substantial, despite a lack of traditional evidence against the Fisher hypothesis.

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    File URL: http://hdl.handle.net/10.1080/09603107.2013.797556
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    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 23 (2013)
    Issue (Month): 13 (July)
    Pages: 1123-1136

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    Handle: RePEc:taf:apfiec:v:23:y:2013:i:13:p:1123-1136
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