Industry Returns and the Fisher Effect

Boudoukh, Jacob; Richardson, Matthew; Whitelaw, Robert F.

doi:10.2307/2329264

Cited by 66 publications

(33 citation statements)

References 11 publications

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“…5 The argument in Glosten et al (1993) builds on the Fisher hypothesis, which establishes a direct link between expected inflation and the short rate, and on the fact that empirically there is a positive relation between inflation volatility and its level (Fischer 1981, Brandt andWang 2003). Also, Fama and Schwert (1977), Fama (1981), Huizinga and Mishkin (1984), Pennacchi (1991), Boudoukh and Richardson (1993), Boudoukh, Richardson and Whitelaw (1994) and others have documented a negative correlation between inflation and real activity, and between inflation and stock returns. Levi and Makin (1980), Mullineaux (1980), Hafer (1986), andHolland (1988) and others have documented a positive relation between inflation uncertainty and economic growth.…”

Section: Introductionmentioning

confidence: 98%

Bond risk, bond return volatility, and the term structure of interest rates

Viceira

2012

International Journal of Forecasting

110

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Section: Introductionmentioning

confidence: 98%

Bond risk, bond return volatility, and the term structure of interest rates

Viceira

2012

International Journal of Forecasting

110

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“…Boudoukh, Richardson and Whitelaw (1994) argue that expected inflation may be correlated with future production and thus affect real stock returns. They find some interesting inflation beta patterns across industries in a regression without any other factors, but none of their beta estimates are statistically significant.…”

Section: Robustness Checks 341 Are the Results Driven By Real Effecmentioning

confidence: 99%

Purchasing Power Parity

2008

Encyclopedia of Public Health

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Relative purchasing power parity (PPP) holds for pure price inflations, which affect prices of all goods and services by the same proportion, while leaving relative prices unchanged. Pure price inflations also affect nominal returns of all traded financial assets by exactly the same amount. Recognizing that relative PPP may not hold for the official inflation data constructed from commodity price indices because of relative price changes and other frictions that cause prices to be "sticky," we provide a novel method for extracting a proxy for realized pure price inflation from stock returns. We find strong support for relative PPP in the short run using the extracted inflation measures. Extracting Inflation from Stock Returns to Test Purchasing Power ParityPurchasing power parity (PPP) is the simple proposition that prices in different countries should be equal if they are converted to the same currency. The absolute version of PPP is based on the law of one price, which maintains that arbitrage should tend to equilibrate prices of the same good at different locations. If the composition of the basket of goods used for constructing price indices is identical across countries, PPP trivially follows from the law of one price.However, frictions to goods arbitrage such as transportation costs and other impediments to trade, the extreme being non-tradable goods such as land, inhibit cross-country price equalization. Even with such frictions, the relative version of PPP, which maintains that the change in price levels across countries should be the same after adjusting for the change in the exchange rate, may still hold if relative price changes across countries are identical. For instance, a pure money shock will change nominal prices of all goods, services and assets by exactly the same amount so that relative prices among different assets will remain constant.In this strict pure price inflation case, the relative version of PPP will hold.Although simple, the PPP hypothesis has defied empirical confirmation for decades.There seems to be little agreement about why it fails so spectacularly when taken to data. 1The absolute version of PPP may fail because of the above mentioned frictions to goods arbitrage, and is not the focus of this paper. Our focus instead is on the failure of relative PPP.1 Rather than provide a long list of relevant references here, we point the reader to an excellent survey by Rogoff (1996). 1The failure of relative PPP in its most basic form can be described as follows. If relative PPP holds, then changes in the exchange rate must equal the concurrent inflation differential between two countries. Empirically, the two are at most weakly correlated (Rogoff, 1996). Furthermore, changes in exchange rates are extremely volatile, with a yearly standard deviation typically on the order of 12-13% for developed countries, while inflation differentials have yearly standard deviations less than 1% (see Rogoff, 1998). This empirical regularity has led scholars to wonder if exchange rate movements ...

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“…0 ne devrait pas être significativement différent de zéro. Boudoukh, Richardson et Whitelaw (1994) Une seconde approximation de l'inflation anticipée utilisée dans la littéra-ture est proposée par Boudoukh, Richardson et Whitelaw (1994). Cette approximation consiste en une régression par moindres carrés ordinaires de l'inflation courante sur l'inflation passée et un taux de rendement sans risque à court terme, soit…”

Section: Lapproximation Deunclassified

Rendements boursiers et inflation

Beaulieu

2009

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RÉSUMÉ L’évidence américaine (Fama et Schwert, 1977) et celle d’autres pays industrialisés (Solnik, 1983) identifie une piètre performance des marchés boursiers en période d’inflation. Dans ces études, les rendements boursiers sont négativement corrélés avec l’inflation anticipée et non anticipée. Cet article évalue si la même relation existe dans certains pays en émergence. La présence d’un lien entre l’inflation (anticipée et non anticipée) et les rendements boursiers est testée en corrigeant pour l’hétéroscédasticité et en tenant compte d’événements importants affectant le prix des titres boursiers. L’évidence empirique indique que le régime fiscal d’un pays est important pour l’obtention d’une relation positive entre l’inflation et les rendements boursiers.

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Industry Returns and the Fisher Effect

Cited by 66 publications

References 11 publications

Bond risk, bond return volatility, and the term structure of interest rates

Bond risk, bond return volatility, and the term structure of interest rates

Purchasing Power Parity

Rendements boursiers et inflation

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