Asset Returns and Inflation

Eugene F. Fama

University of Chicago, Chicago, IL 60637

G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research

Journal of Financial Economics, 5 (November 1977) 115-146

JFE All Star Paper

We estimate the extent to which various assets were hedges against the expected and unexpected components of the inflation rate during the 1953-71 period. We find that U. S. government bonds and bills were a complete hedge against expected inflation, and private residential real estate was acomplete hedge against both expected and unexpected inflation. Labor income showed little short-term relationship with either expected or unexpected inflation. The most anomalous result is that common stock returns were negatively related to the expected component of the inflation rate, and probably also to the unexpected component.

Key words: Inflation, interest rates, stock returns

JEL Classifications: G12, G14, E31

Cited 1,171 times in the SSCI and SCOPUS through 2020

© Copyright 1977, Elsevier

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