Extracting Inflation from Stock Returns to Test Purchasing Power Parity

Bhagwan Chowdhry, Richard Roll and Yihong Xia
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Bhagwan Chowdhry: U of California, Los Angeles
Yihong Xia: University of Pennsylvania

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We provide a novel method for extracting estimates of realized pure price inflation from stock returns. The key is recognizing that pure price inflation should affect nominal returns of all traded assets by exactly the same amount. The popular Fama-French three-factor model is employed to purge stock returns of real economic factors. We uncover evidence that purchasing power parity holds quite well using the extracted inflation measures.

Date: 2003-06
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http://www.anderson.ucla.edu/faculty/bhagwan.chowdhry/ppp.pdf

Related works:
Journal Article: Extracting Inflation from Stock Returns to Test Purchasing Power Parity (2005)
Working Paper: Extracting Inflation from Stock Returns to Test Purchasing Power Parity (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:03-1

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