NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Firm Characteristics, Unanticipated Inflation, and Stock Returns

Douglas K. Pearce, V. Vance Roley

NBER Working Paper No. 2366 (Also Reprint No. r1123)
Issued in August 1987
NBER Program(s):   ME

This paper re-examines the effects of nominal contracts on the relationship between unanticipated inflation and individual stock's rate of return. This study differs in three main ways from previous research. First, announced inflation data are used to examine the effects of unanticipated inflation. Second, a different specification is used to obtain more efficient estimates. Third, additional nominal contracts are considered. The empirical results indicate that time-varying firm characteristics related to inflation predominately determine the effect of unanticipated inflation on a stock's rate of return. A firm's debt-equity ratio appears to be particularly important in determining the response.

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Document Object Identifier (DOI): 10.3386/w2366

Published: The Journal of Finance, Vol. XLIII, No. 4, (September 1988).

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