 Inflation risk and stock returns: Evidence from US aggregate and sectoral marketsThomas C. Chiang and Pei-Ying Chen The North American Journal of Economics and Finance, 2023, vol. 68, issue C Abstract: This study examines the relation between inflation risk and stock returns and finds a negative relation in US aggregate data. A comparable result is found in other G7 economies. Introducing the inflation-induced equity market volatility as an incremental variable consistently produces a negative effect on stock returns. The same finding holds true for monetary policy uncertainty, which also produces a negative relation. Ignoring these two elements will produce a biased estimator of inflation’s effect on stock returns. Testing of sectoral stocks in the US market indicates that most sectors find a significant number of sectors exhibit negative inflation coefficients, confirming the Fama proxy hypothesis. The exception is the energy sector that presents a positive sign, indicating a hedging capacity against inflation. Including the interacting term between a change in monetary policy uncertainty and lagged equity market volatility, the evidence suggests an enhanced negative effect on stock returns. Keywords: Stock return; Inflation; Monetary policy uncertainty; Fisher hypothesis; Equity market volatility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:68:y:2023:i:c:s1062940823001092 DOI: 10.1016/j.najef.2023.101986 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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