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Inflation, Risk, and Equilibrium Asset Returns [r-libre/1575]

Bergeron, Claude (2014). Inflation, Risk, and Equilibrium Asset Returns. International Research Journal of Finance and Economics, 119, 140-148.

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Content : Accepted Version
Item Type: Journal Articles
Refereed: Yes
Status: Published
Abstract: In this note, we examine the theoretical effect of inflation and risk on asset returns. From the fundamental prediction of the capital asset pricing model, we first relate the expected nominal rate of return of the asset to its inflation beta (estimated by the covariance between the asset’s nominal rate of return and the rate of inflation, divided by the variance of the inflation rate). Then, we show that the equilibrium expected rate of return on risky asset can be expressed by a linear combination of its standard beta and inflation beta. This result indicates that inflation rate, in addition to market return, influences asset returns. This result also suggests that inflation risk, in addition to market risk, should be priced in the cross-section of asset returns.
Official URL: https://www.internationalresearchjournaloffinancea...
Depositor: Bergeron, Claude
Owner / Manager: Claude Bergeron
Deposited: 22 Nov 2018 15:30
Last Modified: 21 May 2019 20:35

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