EVIDENCE ON THE EXISTENCE OF COMMON STOCK INFLATION HEDGES

Previous researchers have been unable to identify (on an ex ante basis) inflation hedge portfolios consisting of common stocks. This study demonstrates a procedure for forming common stock portfolios that offer returns that vary positively with unexpected inflation. The strategy could have been used to hedge against purchasing power risk during the 1974–1979 period. In addition to its practical value, the research has important implications for capital asset pricing theory since the existence of hedge portfolios is a necessary condition for the superiority of the multi-period CAPM over the single-period models.     

THE INFLUENCE OF ORGANIZED OPTIONS TRADING ON STOCK PRICE BEHAVIOR FOLLOWING LARGE ONE-DAY STOCK PRICE DECLINES

In this study I examine the effect of organized options trading on stock price behavior immediately following stock price declines of 10 percent or more. A matched-pair sample of National Market System option and nonoption firms are analyzed from June 1985 through December 1992. After controlling for the bid-ask bounce, firm size, share price, return standard deviation, and beta, I find that three-day cumulative abnormal returns for option firms are approximately 1.57 percent less than those for nonoption firms. Thus, options trading enhances stock market efficiency and/or liquidity. However, no profitable trading strategies are indicated.     

THE CONTRIBUTION OF INFLATION UNCERTAINTY TO THE VARIABLE IMPACTS OF MONEY ON STOCK PRICES

This paper examines the effects of inflation uncertainty on the lag structure between money growth and stock prices. Using a varying parameter model and the Livingston survey data 1 1 Livingston, J. A., “Inflation Expectations Surveys.” Published twice annually, Philadelphia Sunday Bulletin (1948–1971), Philadelphia Inquirer (1972 on).
as a proxy for inflation uncertainty, the results suggest that only current money growth influences stock prices. However, a large percentage of this positive impact can be expected to be offset by inflation uncertainty prevailing at the time.