TY - JOUR
T1 - Time-varying inflation risk and stock returns
AU - Boons, Martijn
AU - Duarte, Fernando
AU - de Roon, Frans
AU - Szymanowska, Marta
N1 - Funding agencies#
Dauphine Chair in Asset Management#
an initiative of Amundi and University Paris-Dauphine#
under the aegis of the Dauphine Foundation#
PY - 2020/5/1
Y1 - 2020/5/1
N2 - We show that inflation risk is priced in stock returns and that inflation risk premia in the cross-section and the aggregate market vary over time, even changing sign as in the early 2000s. This time variation is due to both price and quantities of inflation risk changing over time. Using a consumption-based asset pricing model, we argue that inflation risk is priced because inflation predicts real consumption growth. The historical changes in this predictability and in stocks’ inflation betas can account for the size, variability, predictability, and sign reversals in inflation risk premia.
AB - We show that inflation risk is priced in stock returns and that inflation risk premia in the cross-section and the aggregate market vary over time, even changing sign as in the early 2000s. This time variation is due to both price and quantities of inflation risk changing over time. Using a consumption-based asset pricing model, we argue that inflation risk is priced because inflation predicts real consumption growth. The historical changes in this predictability and in stocks’ inflation betas can account for the size, variability, predictability, and sign reversals in inflation risk premia.
KW - Cross-sectional asset-pricing
KW - Individual stock returns
KW - Inflation
KW - Inflation hedging
KW - Nominal-real covariance
KW - Time-varying inflation risk premium
UR - http://www.scopus.com/inward/record.url?scp=85073567505&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2019.09.012
DO - 10.1016/j.jfineco.2019.09.012
M3 - Article
AN - SCOPUS:85073567505
SN - 0304-405X
VL - 136
SP - 444
EP - 470
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -