Relative Price Variability, Real Shocks, and the Stock Market

Gautam Kaul () and H Nejat Seyhun

Journal of Finance, 1990, vol. 45, issue 2, 479-96

Abstract: In this paper, the authors investigate the effects of relative price variability on output and the stock market, and gauge the extent to which inflation proxies for relative price variability in stock-return-inflation regressions. The evidence shows that the negative stock-return-inflation relations proxy for the adverse effects of relative price variability on economic activity, particularly during the 1970s, when the United States experienced oil supply shocks. Hence, it appears that inflation spuriously affects the stock market in two ways: the aggregate output link of E. F. Fama (1981) and the supply shocks reflected in relative price variability. Copyright 1990 by American Finance Association.

Date: 1990
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