New evidence for the inflation hedging potential of US stock returns

Most of the empirical studies in the literature do not seem to support the use of US stocks as a good hedge against inflation. In this study, we demonstrate that the results can be upturned if the price level data for the individual constituents of US stock returns is used rather than the index level data. This conclusion is robust to alternative methods of analyses, data frequencies and measures of inflation. In sum, estimating with the aggregate (index level) data when analysing the inflation hedging potential of US stock returns, may lead to wrong conclusions if not carefully implemented.