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Title:Expected inflation, expected stock returns, and money illusion: what can we learn from survey expectations? PDF Logo
Authors:Schmeling, Maik
Schrimpf, Andreas
Issue Date:2008
Series/Report no.:SFB 649 discussion paper 2008,036
Abstract:We show empirically that survey-based measures of expected inflation are significant and strong predictors of future aggregate stock returns in several industrialized countries both in-sample and out-of-sample. By empirically discriminating between competing sources of this return predictability by virtue of a comprehensive set of expectations data, we find that money illusion seems to be the driving force behind our results. Another popular hypothesis - inflation as a proxy for aggregate risk aversion - is not supported by the data.
Subjects:Inflation expectations
money illusion
proxy hypothesis
stock returns
JEL:G10
G12
E44
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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