Inflation and Trading

70 Pages Posted: 20 May 2024

See all articles by Philip Schnorpfeil

Philip Schnorpfeil

Goethe University Frankfurt

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Andreas Hackethal

Goethe University Frankfurt

Multiple version iconThere are 3 versions of this paper

Date Written: May 2024

Abstract

We study how investors respond to inflation combining a customized survey experiment with trading data at a time of historically high inflation. Investors' beliefs about the stock return-inflation relation are very heterogeneous in the cross section and on average too optimistic. Moreover, many investors appear unaware of inflation-hedging strategies despite being otherwise well-informed about inflation and asset returns. Consequently, whereas exogenous shifts in inflation expectations do not impact return expectations, information on past returns during periods of high inflation leads to negative updating about the perceived stock-return impact of inflation, which feeds into return expectations and subsequent actual trading behavior.

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Suggested Citation

Schnorpfeil, Philip and Weber, Michael and Hackethal, Andreas, Inflation and Trading (May 2024). NBER Working Paper No. w32470, Available at SSRN: https://ssrn.com/abstract=4833950

Philip Schnorpfeil (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Michael Weber

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Andreas Hackethal

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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