A Study On The Influence Of Inflation On Stock Return

The change of inflation rate is one of the important macroeconomic phenomena that can not be ignored in capital market,and inflation risk is one of the most concerned problems of long-term investors.Instruments linked to inflation,such as Treasury inflation-protected securities,provide a hedge against inflation,but the real rate of return on such assets tends to be low.This makes it attractive for investors to expand their portfolios by investing in stocks to benefit from equity premiums.But the stock market is likely to face the risk of inflation.A common view in the economic literature suggests that,if the Fisher hypothesis holds,assets are a good tool against inflation(for example,Fama and schwert,1977;Boudoukh and richardson,1993 years;Barnes et al.,1999;Bekaert and wang,2010 years).In the classic theoretical Interest(1930),Owen Fisher Snow assumes that the expected inflation rate has been fully incorporated into the pre-nominal interest rate.However,he also ruled out the relationship between expected real interest rates and expected inflation,emphasizing the independence of the physical and monetary sectors.Since stocks represent claims to physical assets,they are considered to be long-term hedging of good inflation rates.However,empirical research has produced vague results on the impact of inflation rate on stock returns.There are many literatures to study the relationship between inflation rate and stock yield from a macroscopic point of view(Fama and Schwert,1977;erb and Harvey,2006),but there are few literatures to analyze themicroscopic transmission mechanism from inflation rate to stock income.Tomek Katzur and Laura Spierdijk(2013)based on the economic inflation index,the parameter uncertainty coefficient involved in the estimation model is explicitly considered,and a new inflation risk is proposed to measure the economic impact of inflation rate on stock return under the background of portfolio optimization.The accounting treatment of inflation rate has been widely discussed in the literature,and the goal of maintaining the productive capacity of enterprise entities has been widely accepted.Among other things,Revsine,Weygandt(1974)and Entoven(1976)provided theoretical justification for this goal,the importance of which was recognized not only by accountants but also by businessmen,financial analysts and regulators.In several domestic studies,Li Wenjing and Zhengmanni(2014),Raopingui and Zhang Huili(2015),Raopingui,YueHeng and Jiang Guohua,respectively,found that the inflation rate had a significant impact on the investment and asset allocation of enterprises from three angles,namely,enterprise Investment,enterprise cash holding and enterprise inventory adjustment.Few scholars have studied the impact of inflation on stock returns from a micro perspective,and further analyzed its transmission mechanism.Based on the regulatory nature of China's formal financial system,this paper uses the annual data of a-Share listed companies in Shanghai and Shenzhen in2003-2017 to study the relationship between inflation rate and stock return from the microscopic perspective of enterprise financing behavior.This paper finds that,first,the proportion of enterprise's borrowing financing will rise with the increase of inflation rate,in the period of rising inflation rate,enterprises will increase their own short-term borrowing financing ratio,reduce their own long-term borrowing financing ratio.Short-term borrowing is mainly to make up for the shortage of enterprise working capital,the impact of inflation rate is greater,long-term borrowing is mainly to meet the needs of enterprises in order to expand the scale of operation,construction of plant and purchase of machinery and equipment to invest in the long-term larger borrowing,in the rise in inflation,enterprises will increase their own short-Thecorresponding reduction in the demand for long-term borrowing.Second,in the period of rising inflation rate,the higher the proportion of borrowing financing,the greater the financial risk and operational risk of enterprises.In the period of rising inflation rate,the increase of the proportion of borrowing financing also increases the comprehensive risk of enterprises,and the inflation rate will directly increase the market risk of enterprises.For corporate stocks with a high debt-to-equity ratio,the covariance of the return on assets and the return on the market portfolio is greater than the covariance of the return on equity and the return on the market portfolio for another company in the same risk category with a lower debt-equity ratio.Third,the rise in inflation will increase the uncertainty of the financial system,at which point higher external financing will become a serious debt burden for enterprises.Inflation risk is one of the top concerns of long-term investors,who will consider the economic impact of inflation on stock returns in the context of portfolio optimization,adopt conservative investment practices,and further reduce their holdings,eventually reducing stock returns.If the financial leverage,operating leverage,or combined leverage of an enterprise is higher,the greater the increase in stock returns as the rate of inflation rises.IV,for large companies,the scale of investment demand is so large that informal finance cannot fully meet demand and is therefore more binding on restrictions on access to external financing.Because larger state-owned enterprises are likely to be an important engine for economic growth,it is easier to access loans from commercial banks.China's credit distribution has the characteristics of government intervention,and favors state-owned enterprises.For smaller non-state-owned companies,the demand for investment funds is relatively small,making it easier to use informal funds,such as funds from friends,relatives or trading partners,to meet these needs.