Stamp Returns and Economic Factors

Abstract

In the last two decades, a number of prominent financial economists have considered the extent to which assets provide hedges against inflation and/or other sources of systematic risk. Motivated by the high inflation rates of the 1970s, Fama and Schwert [5] conducted the seminal analysis on asset returns and inflation, investigating the extent to which the returns to various assets, including common stock, government bonds, treasury bills, real estate, and human capital, were hedges against anticipated and unanticipated inflation. Fama and Schwert found that bonds, bills, and real estate provided effective hedges against anticipated inflation for the period 1953-1971, but only real estate provided a hedge against unanticipated inflation. In fact, most of the assets had a negative sensitivity to unanticipated inflation, with common stock showing a negative relationship to both sources of inflation.