Inflation Expectations and Stock Returns

30 Pages Posted: 18 Jul 2022 Last revised: 29 Jul 2022

See all articles by Manav Chaudhary

Manav Chaudhary

University of Chicago - Booth School of Business; University of Chicago - Department of Economics

Benjamin Marrow

University of Chicago - Booth School of Business

Date Written: July 5, 2022

Abstract

Do stocks protect against rising inflation expectations? We directly measure investors' expectations using inflation-indexed contracts and show that stocks offer positive returns in response to higher expectations; i.e., that stocks hedge against changes in expectations. Using high-frequency identification around CPI releases, we provide evidence that the positive relationship is causal, and driven primarily by changes in risk premia rather than through an interest rate or cash flow channel.

Suggested Citation

Chaudhary, Manav and Marrow, Benjamin, Inflation Expectations and Stock Returns (July 5, 2022). Available at SSRN: https://ssrn.com/abstract=4154564 or http://dx.doi.org/10.2139/ssrn.4154564

Manav Chaudhary (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Benjamin Marrow

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

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