Inflation Expectations, U.S. Categorical Equity Market Uncertainty and Real Stock Returns – Evidence from Global Markets
Year: 2024
Type: article
Abstract: This study examines the response of real stock returns to expected inflation and uncertainty as measured by state variable correlated with equity market volatility (EMV). Evidence reveals a significantly negative relationship between real stock returns and expected inflation for each country except some cases in India and Japan. Evidence indicates a negative relationship between real stock returns and uncertainty, which is measured not only by the impact of the Fed’s monetary policy uncertainty but also from various state variables that covary with EMV. These elements have not been explicitly incorporated into test equations in previous studies of the inflation-stock return relationship. The model is robust in its ability to test data for both advanced and emerging markets, level or the first difference of explanatory variables, and various categorical EMVs. Evidence shows that the Fed’s rate hikes respond to the inflation data, displaying a nonlinear impact on real stock returns.
Source: Financial Economics Letters
DOI: 10.58567/fel03040002
Author: Thomas C. Chiang
Institution: Drexel University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4405784115