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A Theory of the Nominal Character of Stock Securities.
A Theory of the Nominal Character of Stock Securities.
- Source :
- Review of Finance; Sep2023, Vol. 27 Issue 5, p1615-1657, 43p
- Publication Year :
- 2023
-
Abstract
- We construct recursive solutions for, and study the properties of the dynamic equilibrium of an economy with three types of agents: (i) household/investors who supply labor with a finite elasticity, consume a large variety of goods that are not perfect substitutes and trade government bonds; (ii) firms that produce those varieties of goods, receive productivity shocks and set prices in a Calvo manner; (iii) a government that collects an income-driven fiscal surplus and acts mechanically, buying and selling bonds in accordance with a Taylor policy rule based on expected inflation. In this setting, we show that stock market returns are much less than one-for-one related to inflation over a 1-year holding period, which means that stock securities have a strong nominal character. We also show that their nominal character diminishes as the length of the stock-holding period increases, in accordance with empirical evidence. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 15723097
- Volume :
- 27
- Issue :
- 5
- Database :
- Complementary Index
- Journal :
- Review of Finance
- Publication Type :
- Academic Journal
- Accession number :
- 172001600
- Full Text :
- https://doi.org/10.1093/rof/rfac071