Empirical evidence of a positive inflation premium being incorporated into stock prices |
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Authors: | Austin Murphy Anandi Sahu |
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Institution: | (1) Oakland University, U.S.A. |
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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. |
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Keywords: | |
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