The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Firm Characteristics, Unanticipated Inflation, and Stock Returns
Published: 09/01/1988 | DOI: 10.1111/j.1540-6261.1988.tb02615.x
DOUGLAS K. PEARCE, V. VANCE ROLEY
This paper re‐examines the effects of nominal contracts on the relationship between unanticipated inflation and an 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.