We document strong U.S. stock and bond return predictability from several macroeconomic volatility series before 1982, and a significant decline in this predictability during the Great Moderation. These findings are robust to alternative empirical specifications and out-of-sample tests. We...

U.S. stocks' response to inflation surprises is, on average, robustly negative. Stocks' response to positive inflation surprises shows much more pronounced time-series variability than their response to negative inflation surprises. In our sample, stocks react significantly to positive inflation...