Effects of Nominal Contracting on Stock Returns
Yale University, New Haven, CT
and National Bureau of Economic Research
Richard S. Ruback
Harvard University, Cambridge, MA
and National Bureau of Economic Research
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Journal of Political Economy, 91 (February 1983) 70-96
This paper examines the effects of unexpected inflation on the returns to
the common stock of companies with different short-term monetary positions,
different long-term monetary positions, and different amounts of nominal
tax shields. Unlike most previous studies of the effects of nominal
contracting, we distinguish between expected and unexpected inflation in
our tests. Surprisingly, over the 1947-79 period, there is little evidence
that stockholders of net debtor firms benefit from unexpected inflation
relative to stockholders of net debtor firms. We conclude that wealth
effects caused by unexpected inflation are not an important factor in
explaining the behavior of stock prices.
Key words: Inflation, Nominal contracting, ARIMA, Tax effects
JEL Classifications: G14, E31
Cited 38 times in the SSCI through April 1996
© Copyright 1983, University of Chicago Press
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