Time-varying inflation risk and stock returns
Boons,Martijn Duarte,Fernando de Roon,Frans Szymanowska,M.
Boons,Martijn
Duarte,Fernando
de Roon,Frans
Szymanowska,M.
Abstract
We show that inflation risk is priced in stock returns and that inflation risk premia in the cross-section and the aggregate market vary over time, even changing sign as in the early 2000s. This time variation is due to both price and quantities of inflation risk changing over time. Using a consumption-based asset pricing model, we argue that inflation risk is priced because inflation predicts real consumption growth. The historical changes in this predictability and in stocks’ inflation betas can account for the size, variability, predictability, and sign reversals in inflation risk premia.
Description
Date
2020-05
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
inflation, time-varying inflation risk premium, inflation hedging, cross-sectional asset pricing, nominal-real covariance, G11 - Portfolio Choice ; Investment Decisions, G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates, G13 - Contingent Pricing ; Futures Pricing
Citation
Boons, M, Duarte, F, de Roon, F & Szymanowska, M 2020, 'Time-varying inflation risk and stock returns', Journal of Financial Economics, vol. 136, no. 2 , pp. 444-470. https://doi.org/10.1016/j.jfineco.2019.09.012
License
info:eu-repo/semantics/closedAccess