Stock Returns, Inflation and the Phillips Curve

• Main Authors: WU, Chunchi, Kim, Moon, Booth, Geoffrey
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1986
• Subjects: Business
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/824
• Institution: Singapore Management University

In recent years, the negative relation between stock returns and inflation has been rigorously investigated. Studies by Lintner [25], Bodie [1], Jaffee and Mandelker [21], Nelson [28], Fama and Schwert [11], and Gultekin [17], to name but a few, consistently show that stock returns are negatively associated with inflation, if associated at all, and conclude that the Fisher hypothesis does not hold for stocks. Explanations for this finding are equally abundant. For instance, Fama [10] postulates that the observed negative association is largely a spurious phenomenon, a conclusion he justifies by maintaining that it is consistent with a simple money demand-quantity theory world.