Economics, Econometrics and Finance
3 years ago

Stock market returns not directly tied to inflation, impacting investment strategies.

SSRN Electronic Journal
A Theory of the Nominal Character of Stock Securities
Bernard Dumas, Marcel Savioz

Paper Summary

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The article explores how stock market returns are influenced by inflation over different time periods. The researchers studied an economy with households, firms, and a government to show that stock securities are strongly tied to inflation in the short term but less so over longer periods. This means that stocks have a significant nominal character that decreases as you hold them for longer.