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The Impact of Inflation Measures on the Real Returns and Risk of U.S. Stocks
Author(s) -
Jones Charles P.,
Wilson Jack W.
Publication year - 2006
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2006.00131.x
Subject(s) - economics , inflation (cosmology) , stock (firearms) , econometrics , real interest rate , standard deviation , price index , inflation rate , measure (data warehouse) , monetary economics , interest rate , mathematics , statistics , database , computer science , mechanical engineering , physics , theoretical physics , engineering
Using different inflation measures produces economically significant differences in both the inflation record and inflation‐adjusted stock returns. We introduce a more consistent measure of the monthly Consumer Price Index (CPI) inflation rate to better measure real returns over 1913–2004, for which the official CPI exists. We also extend the series backward to 1871 on a monthly basis, an important addition to the data series. We analyze the impact of inflation on the real standard deviation of stock returns and find that, in contrast to the results for geometric mean returns, inflation adjustments have little impact on estimates of return variability.