Disciplines
Finance and Financial Management
Abstract
This paper examines data for stock prices and price levels of 14 developed countries during the post-WWII era and compares their behavior in that sample with behavior over the past two centuries in the UK and the US. Contrary to much of the literature of the past several decades, we find that nominal equity prices do, in fact, keep pace with movements in the overall price level. Our results suggest, however, that this is only the case over long periods. The puzzle therefore is not that equities fail the test as inflation hedges, as had been quite widely believed, but that they take so long to pass.
Recommended Citation
Lothian, James R. and McCarthy, Cornelia, "Equity Returns and Inflation: The Puzzlingly Long Lags" (2001). CRIF Working Paper series. 16.
https://research.library.fordham.edu/crif_working_papers/16
