Share returns and the Fisher hypothesis reconsidered

This paper compares and tests the four different proxy hypotheses and examines their ability to explain two empirical regularities, namely that the inflation elasticity of share returns tends towards zero in the postwar period and towards two in the interwar period. Using monthly and annual data for almost a century, for 17 OECD (Organisation for Economic Coorporation and Development) countries, the estimates show that the proxy models give important insight into the relationship between inflation and share returns.