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Stock Market Returns and Inflation Forecasts



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    • Associate Professor of Finance, The Wharton School, University of Pennsylvania. This paper was written while I was Visiting Associate Professor of Finance and Business Economics at the Graduate School of Business, University of Chicago. I would like to thank Marshall E. Blume, Eugene F. Fama, Irwin Friend, Mustafa N. Gultekin, Joel Hasbrouck, and especially Michael J. Brennan, Anthony M. Santomero and Stephen Figlewski for their helpful comments. Mustafa N. Gultekin also provided invaluable programming help. The errors are mine.


This study uses data from the Livingston survey of expectations to examine the Fisher hypothesis as a model relating expected stock returns and expected inflation. We show that the Fisher hypothesis holds much better for ex ante expectations than ex post realizations.

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