Stock prices–inflation puzzle and the predictability of stock market returns

Christophe Boucher ()
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Christophe Boucher: CEPN - Centre d'Economie de l'Université Paris Nord (ancienne affiliation) - UP13 - Université Paris 13 - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper considers a new perspective on the relationship between stock prices and inflation, by estimating the common long-term trend in the earning–price ratio and inflation. We find that the transitory deviations from this common trend exhibit substantial out-of-sample forecasting abilities for excess returns at short and intermediate horizons.

Keywords: Time-varying expected returns; Stock return predictability; Stock prices–inflation puzzle (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (6)

Published in Economics Letters, 2006, 90, pp.205-212

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00268110

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