Stock returns and inflation risk: Economic versus statistical evidence

Tomek Katzur, Laura Spierdijk*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)1123-1136
Number of pages14
JournalApplied Financial Economics
Volume23
Issue number13
DOIs
Publication statusPublished - Jul 2013
Externally publishedYes

Keywords

  • Fisher hypothesis
  • Inflation risk
  • Investment horizon
  • Parameter uncertainty
  • n/a OA procedure

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