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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27158
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| Title: | Stock Returns, Inflation, and the 'Proxy Hypothesis:' A New Look at the Data |
| Authors: | Balduzzi, Pierluigi |
| Keywords: | vector autoregression
vector moving average
covariance decomposition |
| Issue Date: | Jun-1994 |
| Series/Report no.: | FIN-94-008 |
| Abstract: | This paper reexamines the proxy hypothesis of Fama (American Economic
Review, 1981, 71, 545-565) as the main explanation for the negative
correlation between stock returns and inflation. We look at quarterly
data on industrial-production growth, monetary-base growth, CPI
inflation, three-month Treasury-bill rates, and returns on the
equally-weighted NYSE portfolio, for the 1954-1976 and 1977-1990
periods. Using time-series techniques, we find that production growth
induces only a weak negative correlation between inflation and stock
returns, and explains less of the covariance between the two series than
inflation and interest-rate innovations. |
| URI: | http://hdl.handle.net/2451/27158 |
| Appears in Collections: | Finance Working Papers
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