Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25278
Authors: 
Schmeling, Maik
Schrimpf, Andreas
Year of Publication: 
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

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