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2008•The Journal of Financial ResearchRequires access

STOCK MARKET REACTION TO GOOD AND BAD INFLATION NEWS

Johan Knif, James W. Kolari, Seppo Pynnönen

Open publisher page 54 citations

Abstract

Abstract This article shows that differentiating between good and bad inflation news is important to understanding how inflation affects stock market returns. Summing positive and negative inflation shocks as in previous studies tends to wash out or mute the effects of inflation news on stock returns. More specifically, we find that, depending on the economic state, positive and negative inflation shocks can produce a variety of stock market reactions. We conclude that the effect of inflation on stock returns is conditional on whether investors perceive inflation shocks as good or bad news in different economic states.

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What this paper is about

Abstract This article shows that differentiating between good and bad inflation news is important to understanding how inflation affects stock market returns. Summing positive and negative inflation shocks as in previous studies tends to wash out or mute the effects of inflation news on stock returns. More specifically, we find that, depending on the economic state, positive and negative inflation shocks can produce a variety of stock market reactions. We conclude that the effect of inflation on stock returns is conditional on whether investors perceive inflation shocks as good or bad news in different economic states.

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OpenAlex reports 54 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

Abstract This article shows that differentiating between good and bad inflation news is important to understanding how inflation affects stock market returns. Summing positive and negative inflation shocks as in previous studies tends to wash out or mute the effects of inflation news on stock returns. More specifically, we find that, depending on the economic state, positive and negative inflation shocks can produce a variety of stock market reactions. We conclude that the effect of inflation on stock returns is conditional on whether investors perceive inflation shocks as good or bad news in different economic states.

Key concepts: Economics, Stock (firearms), Monetary economics, Stock market, Inflation (cosmology), Real interest rate, Economic stability, Financial economics

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