NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflation and the Stock Market

Martin Feldstein

NBER Working Paper No. 276 (Also Reprint No. r0130)
Issued in August 1978
NBER Program(s):   PE

This paper discusses a crucial cause of the failure of share prices to rise during a decade of substantial inflation. Indeed, the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976. The analysis here indicates that this inverse relation between higher inflation and lower share prices during the past decade was not due to chance or to other unrelated economic events. On the contrary, an important adverse effect of increased inflation on share prices results from basic features of the current U.S. tax laws, particularly historic cost depreciation and the taxation of nominal capital gains.

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Document Object Identifier (DOI): 10.3386/w0276

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