TY  - JOUR
AU  - Pindyck,Robert S.
TI  - Risk, Inflation, and the Stock Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1186
PY  - 1983
Y2  - August 1983
UR  - http://www.nber.org/papers/w1186
L1  - http://www.nber.org/papers/w1186.pdf
N1  - Author contact info:
Robert S. Pindyck
MIT Sloan School of Management
100 Main Street, E62-522
Cambridge, MA  02142
Tel: 617/253-6641
Fax: 617/258-6855
E-Mail: RPINDYCK@MIT.EDU
AB  - Most explanations for the decline in share values over the past two decades have focused on the concurrent increase in inflation.This paper considers an alternative explanation: a substantial increase in the riskiness of capital investments. We show that the variance of firms' real gross marginal return on capital has increased significantly, increasing the relative riskiness of investors' returns on equity, and that this can explain a large part of the market decline. We also assess the effects of increase in the mean and variance of the inflation rate, and a decline in firms' expected return on capital.
ER  -