Academic Perspectives on Inflation and Stock Returns

Summary

The document frames a literature question about whether inflation tends to reduce stock returns by hurting corporate profits or support returns because assets may compensate investors for inflation. It does not resolve the disagreement or present empirical findings; instead, it points readers toward further research.

The suggested sources include a non-peer-reviewed piece on inflation and asset returns and a chapter in Antti Ilmanen’s book Expected Returns, along with the academic studies cited in that chapter. These are starting points for a literature survey rather than evidence for either direction of the relationship. The discussion gives no methods, sample periods, or estimates, so readers would need to consult the sources and assess their assumptions before drawing conclusions.

Key ideas

• Inflation’s relationship with stock returns can be framed through both corporate profits and compensation for holding assets.
• The document offers references for further reading rather than a conclusion about the relationship.
• One recommended source is explicitly described as non-peer-reviewed.
• The cited book chapter may help locate academic papers on inflation and asset returns.

Tags

# How does inflation impact stock returns? Academic examples


# How does inflation impact stock returns? Academic examples












For a literature survey in my university class, I have been asked the question "How does inflation impact stock returns?".

After reading some informal articles (in periodicals/ the general internet), I come to the conclusion that inflation is bad for corporate profits and therefore will have a negative impact on stock returns.

From the academic literature, I find that inflation should have a positive relationship with stock returns as "holding assets should compensate for inflation".

My question is, from an academic perspective, can anyone think of any papers which think the relationship should be negative.

I have a deadline on this, and yes I could survey many article by myself (i have already read a few) but I am wondering if someone could point me in the correct direction.

## Answer by Helin (score 3, accepted)

https://quant.stackexchange.com/a/41940

This is not peer reviewed, but it fits the bill and is one of my favorite pieces on this topic: Inflation in 2010 and Beyond. I also recommend Antii Ilmanen’s Expected Returns, which has an entire chapter dedicated to inflation and asset returns. You can also review the papers that Antii references in that chapter.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.