Inflation's negative effects on real stock prices: new evidence and a test of the proxy effect hypothesis
- 1 February 1993
- journal article
- research article
- Published by Taylor & Francis in Applied Economics
- Vol. 25 (2) , 263-274
- https://doi.org/10.1080/00036849300000032
Abstract
The present study examines the effects of inflation on real stock prices using an error-correction model of the S&P 500. Inflation is shown to have a negative and significant impact in a variety of model specifications. The study also investigates whether the observed negative relation arises because inflation proxies for more fundamental relations between stock prices and either future output, relative price uncertainty or inflation uncertainty. The evidence reveals that inflation does not merely proxy for those other factors and, thus, the proxy effect hypothesis in its various forms is rejected.Keywords
This publication has 28 references indexed in Scilit:
- Asset returns and inflationPublished by Elsevier ,2002
- Mean reversion in stock prices: Evidence and ImplicationsPublished by Elsevier ,2002
- Monetary Regimes and the Relation Between Stock Returns and Inflationary ExpectationsJournal of Financial and Quantitative Analysis, 1990
- Testing for Common TrendsJournal of the American Statistical Association, 1988
- Interest Rates and the Subjective Probability Distribution of Inflation ForecastsJournal of Money, Credit and Banking, 1988
- Co-Integration and Error Correction: Representation, Estimation, and TestingEconometrica, 1987
- STOCK RETURNS, INFLATION, AND REAL OUTPUTEconomic Inquiry, 1986
- Stock Prices and Economic NewsThe Journal of Business, 1985
- Relative price variability and inflation: A survey and further resultsCarnegie-Rochester Conference Series on Public Policy, 1983
- The "Rationality" of Money Supply Expectations and the Short-Run Response of Interest Rates to Monetary SurprisesJournal of Money, Credit and Banking, 1981