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Empirical evidence of a positive inflation premium being incorporated into stock prices

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  • Austin Murphy
  • Anandi Sahu

Abstract

This study demonstrates that in contrast to prior research findings on short-term stock returns, long-term stock returns are positively correlated with inflation. In addition, within the context of a more complete explanatory model, long-term stock returns are found to be negatively related to changes in long-term interest rates and negatively related to beginning price to earnings ratios. The significance of these variables in explaining almost all the time series variation in long-term stock returns demonstrates that changes in stock values are well explained by theory. Copyright International Atlantic Economic Society 2001

Suggested Citation

  • Austin Murphy & Anandi Sahu, 2001. "Empirical evidence of a positive inflation premium being incorporated into stock prices," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(2), pages 177-185, June.
    • Handle: RePEc:kap:atlecj:v:29:y:2001:i:2:p:177-185
    DOI: 10.1007/BF02299136
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    References listed on IDEAS

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    Cited by:

    1. Hanna, Michael E. & Kiymaz, Halil & Perdue, Grady, 2001. "Portfolio diversification in a highly inflationary emerging market," Financial Services Review, Elsevier, vol. 10(1-4), pages 303-314.

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