Firm Characteristics, Unanticipated Inflation, and Stock Returns

Douglas Pearce and V. Vance Roley

No 2366, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper re-examines the effects of nominal contracts on the relationship between unanticipated inflation and individual stock's rate of return. This study differs in three main ways from previous research. First, announced inflation data are used to examine the effects of unanticipated inflation. Second, a different specification is used to obtain more efficient estimates. Third, additional nominal contracts are considered. The empirical results indicate that time-varying firm characteristics related to inflation predominately determine the effect of unanticipated inflation on a stock's rate of return. A firm's debt-equity ratio appears to be particularly important in determining the response.

Date: 1987-08
Note: ME
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Published as The Journal of Finance, Vol. XLIII, No. 4, (September 1988).

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Working Paper: Firm characteristics, unanticipated inflation, and stock returns (1988)
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