Inflation and the Stock Market
This paper discusses a crucial cause of the failure of share prices to rise during a decade of substantial inflation. Indeed, the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976. The analysis here indicates that this inverse relation between higher inflation and lower share prices during the past decade was not due to chance or to other unrelated economic events. On the contrary, an important adverse effect of increased inflation on share prices results from basic features of the current U.S. tax laws, particularly historic cost depreciation and the taxation of nominal capital gains.
|Date of creation:||Aug 1978|
|Date of revision:|
|Publication status:||published as Feldstein, Martin. "Inflation and the Stock Market." The American Economic Review, Vol. 70, No. 5, (December 1980), pp. 839-847.|
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- Van Horne, James C & Glassmire, William F, Jr, 1972. "The Impact of Unanticipated Changes in Inflation on the Value of Common Stocks," Journal of Finance, American Finance Association, vol. 27(5), pages 1081-92, December.
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"Share Valuation and Corporate Equity Policy,"
NBER Working Papers
0255, National Bureau of Economic Research, Inc.
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- David F. Bradford, 1979.
"The Incidence and Allocation Effects of a Tax on Corporate Distributions,"
NBER Working Papers
0349, National Bureau of Economic Research, Inc.
- Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February.
- Motley, Brian, 1969. "Inflation and Common Stock Values: Comment," Journal of Finance, American Finance Association, vol. 24(3), pages 530-35, June.
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