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Stock prices–inflation puzzle and the predictability of stock market returns

Author

Listed:
  • Christophe Boucher

    (CEPN - Centre d'Economie de l'Université Paris Nord (ancienne affiliation) - UP13 - Université Paris 13 - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper considers a new perspective on the relationship between stock prices and inflation, by estimating the common long-term trend in the earning–price ratio and inflation. We find that the transitory deviations from this common trend exhibit substantial out-of-sample forecasting abilities for excess returns at short and intermediate horizons.

Suggested Citation

  • Christophe Boucher, 2006. "Stock prices–inflation puzzle and the predictability of stock market returns," Post-Print hal-00268110, HAL.
    • Handle: RePEc:hal:journl:hal-00268110
    as

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    Citations

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    Cited by:

    1. De Santis, Roberto A. & Favero, Carlo A. & Roffia, Barbara, 2013. "Euro area money demand and international portfolio allocation: A contribution to assessing risks to price stability," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 377-404.
    2. Stoyan V. Stoyanov & Yong Shin Kim & Svetlozar T. Rachev & Frank J. Fabozzi, 2017. "Option pricing for Informed Traders," Papers 1711.09445, arXiv.org.
    3. Hosseini, Seyed Mehdi & Ahmad, Zamri & Lai, Yew Wah, 2011. "The Role of Macroeconomic Variables on Stock Market Index in China and India," MPRA Paper 112215, University Library of Munich, Germany.
    4. Boucher, C. & Jasinski, A. & Tokpavi, S., 2023. "Conditional mean reversion of financial ratios and the predictability of returns," Journal of International Money and Finance, Elsevier, vol. 137(C).
    5. Gabe J. de Bondt & Tuomas A. Peltonen & Daniel Santabárbara, 2010. "Booms and busts in China's stock market: Estimates based on fundamentals," Working Papers 1032, Banco de España.
    6. Murphy, Austin & AlSalman, Zeina, 2023. "Relationships between stock returns and real earnings yields over the last 150 years," Finance Research Letters, Elsevier, vol. 57(C).

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