The Adjustment of Stock Prices to Information About Inflation



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    • The National Science Foundation provided support for this research. Ken French and Paul Healy provided valuable assistance with the computations. The comments of Michael Brennan, Eugene Fama, Ken French, Charles Nelson, Charles Plosser, Richard Ruback and Nancy Jacob have been helpful.


This paper analyzes the reaction of stock prices to the new information about inflation. Based on daily returns to the Standard and Poor's composite portfolio from 1953–78, it seems that the stock market reacts negatively to the announcement of unexpected inflation in the Consumer Price Index (C.P.I.), although the magnitude of the reaction is small. It is interesting to note that the stock market seems to react at the time of announcement of the C.P.I., approximately one month after the price data are collected by the Bureau of Labor Statistics.