Horizon sensitivity of the inflation hedge of stocks

Schotman, Peter C.; Schweitzer, Mark E.

doi:10.1016/s0927-5398(00)00013-x

Cited by 91 publications

(65 citation statements)

References 20 publications

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“…Furthermore, the high inflation betas of both the cyclical-and non-cyclical industry portfolios during the 1983Q1-2001Q4 period approximately coincide with the most prolific bull market period of 1980s and 1990s (Ritter and Warr, 2002). Despite the use of a relatively short investment horizon of quarterly returns, the result of the non-cyclical industry portfolio is overall consistent with that of Boudoukh and Richardson (1993), Solnik and Solnik (1997), and Schotman and Schweitzer (2000) who show to the larger extent that the Fisher hypothesis is not rejected at long investment horizons over the sample period that approximately overlaps our first two sub-periods.…”

Section: Fisher Effectsupporting

confidence: 74%

“…Dividend yields are significantly positively associated with expected inflation as opposed to capital gains. Encompassing longer sample periods and using modern econometric approaches, 2 a strand of research provides evidence of validity of the Fisher hypothesis, asserting that the Fisher coefficient is negative at shorter horizons, but becomes positive at longer horizons (Boudoukh and Richardson, 1993;Solnik and Solnik, 1997;Schotman and Schweitzer, 2000).…”

Section: Introductionmentioning

confidence: 99%

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Inflation Hedging and Industry Stock Returns

Yi¹

2017

brcacadjb

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We examine an inflation-hedging ability of stock returns, using cyclical and non-cyclical industries from 1961Q2 to 2014Q4. We document that the returns of the non-cyclical industry portfolio are positively associated with expected inflation. A sub-period analysis shows that the relation is stronger during the bull market period of 1983Q1-2001Q4. Given the empirical findings of the influence of expected and unexpected inflation on the market-tobook (M/B), return on assets (ROA), and leverage ratios, we test and support validity of the Fisher effect for both cyclical and noncyclical industry portfolios over the entire period. In addition, using the Fama-French three factor model, we examine whether the excess stock return is further explained by expected inflation. Although its effect seems captured in the risk-free rate, stocks of the non-cyclical industry portfolio have hedged inflation better 2

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Section: Fisher Effectsupporting

confidence: 74%

Section: Introductionmentioning

confidence: 99%

Inflation Hedging and Industry Stock Returns

Yi¹

2017

brcacadjb

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“…Campbell and Shiller (1988) confirmed that two trends are presents; it is also confirmed by other researchers (Schotman & Schweitzer, 2000;Basse, 2009;Basse & Reddemann, 2011). It is due to two reasons, one is that firms' revenues increase in nominal terms owing to inflation, this leads to increased expected earnings further leading to positive association of stock returns and inflation.…”

Section: Literature Reviewsupporting

confidence: 73%

Equity Returns, Inflation and Real Growth in Pakistan

Ghafoor¹,

Khan²,

Rizwan³

et al. 2014

IJEF

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Study investigates the relationship between stockholders' return, real growth rate and inflation using return on equity as measure of shareholders' return. Annual data on intended variables for non-financial companies listed on Karachi Stock Exchange has been collected from 1966 to 2010(44 years). Taking a macroeconomic perspective, study uses aggregate data rather than data for individual firms. Autoregressive Distributive Lag is used to study the relationship. Results revealed that inflation has no relationship with shareholder' return in both long run and short run, while real growth shows significantly positive association with shareholder's return. We concluded on basis of our analysis that inflation has no direct relationship with shareholders' return. Thus, investment in stocks is not an effective hedge against inflation. Study has implications for investors who should invest in stocks by analyzing the real economic activity of the economy rather than inflation. Although, the data was huge enough to study this relationship, we feel that a better statistical approach to study this relationship can provide further insights.

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“…This means that the lower the interest rates and inflation, the higher the stock market returns and vice versa (Pearce and Roley, 1983;Gjerde and Saettem, 1999;Omrana, 2003). Identical findings that have been published since the early 70s by several authors, demonstrated that an inverse relationship exists between inflation and stock market returns (Jaffe and Mandelker, 1976;Fama and Schwert, 1977;Fama, 1981;Geske and Roll, 1983;Chen et al, 1986;Wahlroos and Berglund, 1986;Cozier and Rahman, 1988;Lee, 1992;Solnik and Solnik, 1997;Siklos and Kwok, 1999;Schotman and Schweitzer, 2000;Engsted and Tanggaard, 2002;Kim and In, 2005). Bilson et al (2001) studied the relationship between money supply and stock market performance in emerging stock markets.…”

Section: Macroeconomic Factors and Stock Market Performancementioning

confidence: 94%

Macro economy, stock market and oil prices: Do meaningful relationships exist among their cyclical fluctuations?

Filis

2010

Energy Economics

198

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This paper examines the relationship among consumer price index, industrial production, stock market and oil prices in Greece. Initially we use a unified statistical framework (cointegration and VECM) to study the data in levels. We then employ a multivariate VAR model to examine the relationship between the cyclical components of our series. The period of the study is from 1996:1 -2008:6. Findings suggest that oil prices and the stock market exercise a positive effect on the Greek CPI, in the long run. Cyclical components analysis suggests that oil prices exercise significant negative influence to the stock market. In addition, oil prices are negatively influencing CPI, at a significant level. However, we find no effect of oil prices on industrial production and CPI. Finally, no relationship can be documented between the industrial production and stock market for the Greek market. The findings of this study are of a particular interest and importance to policy makers, financial managers, financial analysts and investors dealing with the Greek economy and the Greek stock market.

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Horizon sensitivity of the inflation hedge of stocks

Cited by 91 publications

References 20 publications

Inflation Hedging and Industry Stock Returns

Inflation Hedging and Industry Stock Returns

Equity Returns, Inflation and Real Growth in Pakistan

Macro economy, stock market and oil prices: Do meaningful relationships exist among their cyclical fluctuations?

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