Abstract
Abstract This research proposes asset pricing models with inflation factor and also empirically examines performance of the portfolio strategies using the model in the Japanese equity market for the deflationary period covering from 2001 to 2010. Our asset pricing models are Inflation-CAPM and Inflation-FF3 incorporating the inflation factor in the famous CAPM or the Fama-French 3factor model (FF3), respectively. Empirical result for the Inflation-CAPM portfolio strategy reports that the performance (opportunity of the portfolio strategy, accumulated return, rate of wining, average quarterly return and Sharpe ratio) of our strategy is superior to the usual alpha stragegy (CAPM portfolio strategy).
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