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A reexamination of real stock returns, real interest rates, real activity, and inflation: Evidence from a large data set

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journal contribution
posted on 15.08.2017 by Paul M. Jones, Eric Olson, Mark Wohar
Using the informational sufficiency procedure from Forni and Gambetti (2014) along with data from McCracken and Ng (2014), we update the results of Lee (1992) and find that his Vector Autoregression (VAR) is informationally deficient. To correct this problem, we estimate a Factor Augmented VAR (FAVAR) and analyze the differences once informational deficiency is corrected with an emphasis on the relationship between real stock returns and inflation. In particular, we examine Modigliani and Cohn’s (1979) inflation illusion hypothesis, Fama’s (1983) proxy hypothesis, and the “anticipated policy hypothesis.”

History

School

  • Business and Economics

Department

  • Business

Published in

The Financial Review

Citation

JONES, P.M., OLSON, E. and WOHAR, M.E., 2017. A reexamination of real stock returns, real interest rates, real activity, and inflation: Evidence from a large data set. The Financial Review, 52(3), pp. 405–433.

Publisher

© The Eastern Finance Association. Published by Wiley.

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

30/04/2017

Publication date

2017

Notes

This is the peer reviewed version of the following article: JONES, P.M., OLSON, E. and WOHAR, M.E., 2017. A reexamination of real stock returns, real interest rates, real activity, and inflation: Evidence from a large data set. The Financial Review, 52(3), pp. 405–433, which has been published in final form at https://doi.org/10.1111/fire.12137. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.

ISSN

0732-8516

Language

en

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