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The effect of uncertain inflation on firm value in a multiperiod economy |
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| Authors: | Son-Nan Chen S. J. Chang William T. Moore |
| Affiliation: | (1) College of Business and Management, University of Maryland, 20742 College Park, MD;(2) College of Business, Illinois State University, 61761 Normal, IL;(3) College of Business Administration, University of South Carolina, 29208 Columbia, SC |
| Abstract: | We model firm value in a multiperiod setting with uncertain inflation and show that real rates of return on the firm's securities are intertemporally dependent. The model also predicts an inverse intertemporal relationship between the real rate of return and the lagged value of Tobin'sq. We report empirical evidence in support of the hypothesized relationship. The model could explain the mean-reverting property of long-horizon stock returns reported in recent studies. |
| Keywords: | inverse intertemporal relationship multiperiod model |
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