Is Mispricing in Asset Prices Due to the Inflation Illusion?
We examine whether the observed negative relations between stock returns and inflation and between housing returns and inflation can be explained by the inflation illusion hypothesis. We identify the mispricing component in asset prices (i.e., stock prices and housing prices) based on present value...
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| Format: | Article |
| Language: | English |
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Korea Development Institute
2014-08-01
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| Series: | KDI Journal of Economic Policy |
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| Online Access: | https://doi.org/10.23895/kdijep.2014.36.3.25 |
| _version_ | 1811279137813299200 |
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| author | Lee, Bong Soo |
| author_facet | Lee, Bong Soo |
| author_sort | Lee, Bong Soo |
| collection | DOAJ |
| description | We examine whether the observed negative relations between stock returns and inflation and between housing returns and inflation can be explained by the inflation illusion hypothesis. We identify the mispricing component in asset prices (i.e., stock prices and housing prices) based on present value models, linear and loglinear models, and we then investigate whether inflation can explain the mispricing component using the data from three countries (the U.S., the U.K., and Korea). When we take into account the potential asymmetric effect of positive and negative inflation on the mispricing components in asset prices, which is an important implication of the inflation illusion hypothesis, we find little evidence for the inflation illusion hypothesis in that both positive and negative inflation rates do not have a negative effect on the mispricing components. Instead, we find that behavioral factors such as consumer sentiments contribute to the mispricing of asset prices. |
| first_indexed | 2024-04-13T00:49:21Z |
| format | Article |
| id | doaj.art-eceb2abb49a946988443e75a7e561ea6 |
| institution | Directory Open Access Journal |
| issn | 2586-2995 2586-4130 |
| language | English |
| last_indexed | 2024-04-13T00:49:21Z |
| publishDate | 2014-08-01 |
| publisher | Korea Development Institute |
| record_format | Article |
| series | KDI Journal of Economic Policy |
| spelling | doaj.art-eceb2abb49a946988443e75a7e561ea62022-12-22T03:09:55ZengKorea Development InstituteKDI Journal of Economic Policy2586-29952586-41302014-08-01363256010.23895/kdijep.2014.36.3.25Is Mispricing in Asset Prices Due to the Inflation Illusion?Lee, Bong Soo0Professor and Patty Hill Smith Eminent Scholar Chair in Finance, Department of Finance, College of Business, Florida State UniversityWe examine whether the observed negative relations between stock returns and inflation and between housing returns and inflation can be explained by the inflation illusion hypothesis. We identify the mispricing component in asset prices (i.e., stock prices and housing prices) based on present value models, linear and loglinear models, and we then investigate whether inflation can explain the mispricing component using the data from three countries (the U.S., the U.K., and Korea). When we take into account the potential asymmetric effect of positive and negative inflation on the mispricing components in asset prices, which is an important implication of the inflation illusion hypothesis, we find little evidence for the inflation illusion hypothesis in that both positive and negative inflation rates do not have a negative effect on the mispricing components. Instead, we find that behavioral factors such as consumer sentiments contribute to the mispricing of asset prices.https://doi.org/10.23895/kdijep.2014.36.3.25Stock Returns(주식수익률)Housing Returns(주택수익률)Inflation Illusion(인플레이션의 착각)Mispricing(가격의 오류)Consumer Sentiment(소비자 심리) |
| spellingShingle | Lee, Bong Soo Is Mispricing in Asset Prices Due to the Inflation Illusion? KDI Journal of Economic Policy Stock Returns(주식수익률) Housing Returns(주택수익률) Inflation Illusion(인플레이션의 착각) Mispricing(가격의 오류) Consumer Sentiment(소비자 심리) |
| title | Is Mispricing in Asset Prices Due to the Inflation Illusion? |
| title_full | Is Mispricing in Asset Prices Due to the Inflation Illusion? |
| title_fullStr | Is Mispricing in Asset Prices Due to the Inflation Illusion? |
| title_full_unstemmed | Is Mispricing in Asset Prices Due to the Inflation Illusion? |
| title_short | Is Mispricing in Asset Prices Due to the Inflation Illusion? |
| title_sort | is mispricing in asset prices due to the inflation illusion |
| topic | Stock Returns(주식수익률) Housing Returns(주택수익률) Inflation Illusion(인플레이션의 착각) Mispricing(가격의 오류) Consumer Sentiment(소비자 심리) |
| url | https://doi.org/10.23895/kdijep.2014.36.3.25 |
| work_keys_str_mv | AT leebongsoo ismispricinginassetpricesduetotheinflationillusion |