Abstract
Since The US Treasury's issuance of the inflation- protection securities (TIPS) in January 1997, there has been a great deal of renewed interest in studying various aspects of inflation-indexed bonds. This paper develops an equilibrium capital asset pricing model with uncertain inflation (CAPMUI), of which the Sharpe-Lintner-Mossin and the Roll models are the special cases. Based upon the CAPMUI, we analyse the impact of introducing inflation-indexed bonds on the risk-return relationships in the capital markets. Our analysis indicates that there is no a priori reason to believe that linking the bonds to the price level per se results in a welfare gain in risk-reduction in the capital markets. Our analysis indicates that a non- positive correlation between the return on the market portfolio and the rate of inflation is a sufficient condition for the introduction of indexed bonds to provide welfare gain in risk-reduction in the capital markets.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: International Journal of Services Technology and Management
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
