Equity Returns and Inflation: The Puzzlingly Long Lags

James Lothian and Cornelia McCarthy

International Finance from University Library of Munich, Germany

Abstract: This paper examines data for stock prices and price levels of 14 developed countries during the post-WWII era and compares their behavior in that sample with behavior over the past two centuries in the UK and the US. Contrary to much of the literature of the past several decades, we find that nominal equity prices do, in fact, keep pace with movements in the overall price level. Our results suggest, however, that this is only the case over long periods. The puzzle therefore is not that equities fail the test as inflation hedges, as had been quite widely believed, but that they take so long to pass.

Keywords: Stock prices; inflation; Fisher effect; neutrality; cointegration; Equity Returns; Inflation; Long Lags (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2001-07-31
Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP Deskjet 950C; pages: 25; figures: included . This draft May 2001; first draft December 1997
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0107003

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