Extracting Inflation from Stock Returns to test Purchasing Power Parity

We provide a novel method for extracting estimates of realized pure price inflation from stock returns. The key is recognizing that pure price inflation should aÂ®ect nominal returns of all traded assets by exactly the same amount. The popular Fama- French three-factor model is employed to purge stock returns of real economic factors. We uncover evidence that purchasing power parity holds quite well using the extracted inflation measures.

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Year of publication:	2002-06-20
Authors:	Chowdhry, Bhagwan ; Roll, Richard ; Xia, Yihong
Institutions:	Anderson Graduate School of Management, University of California-Los Angeles (UCLA)

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Extent:	application/pdf
Series:	University of California at Los Angeles, Anderson Graduate School of Management.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series Finance
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010536029