Re-examining Stock Valuation and Inflation: The Implications of Analysts' Earnings Forecasts

Topics:
Inflation
Tags:
Currency & Foreign Exchange,
Earnings Forecast,
Finance,
Inflation,
Investment,
Stock
Source:
The Federal Reserve Board

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Overview: This paper examines the effect of inflation on stock valuations and expected long-run returns. The negative relation between equity valuations and expected inflation is found to be the result of two effects: a rise in expected inflation coincides with both, the lower expected real earnings growth and the higher required real returns. The effect of expected inflation on required (long-run) real stock returns is also substantial. Read on for more information.

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Format: PDF | Size: 373KB | Date: Jan 1999 | Pages: 86

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