Empirical evidence of a positive inflation premium being incorporated into stock prices

Austin Murphy and Anandi Sahu

Atlantic Economic Journal, 2001, vol. 29, issue 2, 177-185

Abstract: This study demonstrates that in contrast to prior research findings on short-term stock returns, long-term stock returns are positively correlated with inflation. In addition, within the context of a more complete explanatory model, long-term stock returns are found to be negatively related to changes in long-term interest rates and negatively related to beginning price to earnings ratios. The significance of these variables in explaining almost all the time series variation in long-term stock returns demonstrates that changes in stock values are well explained by theory. Copyright International Atlantic Economic Society 2001

Date: 2001
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DOI: 10.1007/BF02299136

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