Back to Search Start Over

A Theory of the Nominal Character of Stock Securities.

A Theory of the Nominal Character of Stock Securities.

Authors :
Dumas, Bernard
Savioz, Marcel
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