What is it about?

What explains stock returns in the USA? Traditional variables, like inflation and inflation uncertainty, are found to be unrelated to stock returns. Changes in the US dollar exchange rate do impact stock returns but only for the recent period.

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Why is it important?

What is unique in this paper is that new evidence is presented that stock returns are not affected currently by inflation and by inflation uncertainty despite evidence to the contrary in the literature. However changes in the US dollar do explain stock returns

Perspectives

The evidence in the paper shows that market efficiency, exemplified by the present value equation, holds in general. Higher inflation and higher inflation uncertainty mode together. So when inflation is higher both nominal cash flows are higher and the discount rate is higher leading to no change in the present value, or in stock returns.

Prof Samih A Azar
Haigazian University

Read the Original

This page is a summary of: The Determinants of US Stock Market Returns, Open Economics and Management Journal, July 2014, Bentham Science Publishers,
DOI: 10.2174/2352630001401010001.
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