Do Stocks act as a hedge Against Inflation? Evidence From U.S. Market Returns, 1960 to Present
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This study tests whether U.S. common stocks have served as a hedge against inflation. Classical Fisher theory predicts that nominal stock returns should rise one-for-one with expected inflation, yet earlier research documents a negative relation between stock returns and inflation. Using monthly data on the U.S. market return from the Kenneth R. French Data Library and macroeconomic series from the Federal Reserve Bank of St. Louis (FRED), the study estimates regressions of nominal and excess market returns on inflation, controlling for industrial production growth and changes in the federal funds rate, with Newey–West standard errors. Subperiod estimates compare 1960–1982 with 1983 onward. Using 797 monthly observations from January 1960 to August 2026, the study rejects the Fisher prediction that nominal stock returns rise one-for-one with inflation (p = .008). The inflation coefficient is negative in every specification but only weakly significant (p < .10 in two of four models), and adding output growth and the change in the federal funds rate shrinks it only slightly. The negative relation is concentrated in 1960–1982 and is statistically indistinguishable from zero after 1983, although the difference between the two subperiod estimates is not itself statistically significant. The findings are descriptive associations rather than causal effects. The study contributes a transparent, fully reproducible test using only free public data.
Keywords
Fisher Hypothesis, Inflation, Inflation Hedge, Proxy Hypothesis, Stock Returns