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Inflation and Trading

  • We study how investors respond to inflation combining a customized survey experiment with trading data at a time of historically high inflation. Investors' beliefs about the stock return-inflation relation are very heterogeneous in the cross section and on average too optimistic. Moreover, many investors appear unaware of inflation-hedging strategies despite being otherwise well-informed about inflation and asset returns. Consequently, whereas exogenous shifts in inflation expectations do not impact return expectations, information on past returns during periods of high inflation leads to negative updating about the perceived stock-return impact of inflation, which feeds into return expectations and subsequent actual trading behavior.

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Author:Philip SchnorpfeilORCiDGND, Michael Weber, Andreas HackethalORCiDGND
URN:urn:nbn:de:hebis:30:3-715739
URL:https://ssrn.com/abstract=4838014
DOI:https://doi.org/10.2139/ssrn.4838014
Series (Serial Number):SAFE working paper (419)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2024
Year of first Publication:2024
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2024/06/07
Tag:Belief Formation; Field Experiment; Inflation; Trading
Edition:May 10, 2024
Page Number:71
Note:
Funding: Data Science Institute
Note:
Funding: Inquire Europe
Note:
Funding: Leibniz Institute for Financial Research SAFE
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:C Mathematical and Quantitative Methods / C9 Design of Experiments / C93 Field Experiments
D Microeconomics / D1 Household Behavior and Family Economics / D14 Personal Finance
D Microeconomics / D8 Information, Knowledge, and Uncertainty / D83 Search; Learning; Information and Knowledge; Communication; Belief
D Microeconomics / D8 Information, Knowledge, and Uncertainty / D84 Expectations; Speculations
E Macroeconomics and Monetary Economics / E2 Macroeconomics: Consumption, Saving, Production, Employment, and Investment / E22 Capital; Investment; Capacity
E Macroeconomics and Monetary Economics / E3 Prices, Business Fluctuations, and Cycles / E31 Price Level; Inflation; Deflation
E Macroeconomics and Monetary Economics / E4 Money and Interest Rates / E44 Financial Markets and the Macroeconomy
G Financial Economics / G1 General Financial Markets / G11 Portfolio Choice; Investment Decisions
G Financial Economics / G5 G5 / G51 G51
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht