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 |
Files in This Item:
File | Description | Size | Format | |
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wpa94008.pdf | 350.92 kB | Adobe PDF | View/Open |
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