The distributive nominal and real micro effects of inflation on security returns: Some Australian evidence

Abstract

The objective of this study is to provide empirical evidence on the distributive micro effects ofinflation on security returns. Specifically, the study provides evidence on the distributive impact of the depreciation effect, the inventory effect, the borrower's bonus effect, the net debtor effect and the real cash flow effect of inflation on security returns. The experimental design is based on a cross-sectional regression experiment which aims to explain security returns at the end of a period of unexpected inflation in terms of the distributive micro effects of inflation. The results of this study confirm the real cash flow effect of inflation on security returns, but they do not confirm the validity of distributive nominal micro effects of inflation.