Inflation and Trading

71 Pages Posted: 22 May 2024 Last revised: 30 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 - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE

Multiple version iconThere are 3 versions of this paper

Date Written: May 10, 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.

Keywords: Belief Formation, Field Experiment, Inflation, Trading

JEL Classification: C93, D14, D83, D84, E22, E31, E44, G11, G51

Suggested Citation

Schnorpfeil, Philip and Weber, Michael and Hackethal, Andreas, Inflation and Trading (May 10, 2024). SAFE Working Paper No. 419, Available at SSRN: https://ssrn.com/abstract=4838014 or http://dx.doi.org/10.2139/ssrn.4838014

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
44
Abstract Views
197
PlumX Metrics