Inflation and bond‐stock characteristics of international security returns

Abstract

Purpose

The purpose of this research is to explain the cross‐sectional variation in the relation between international security returns and expected inflation based on their sensitivities to world stock and bond factors.

Design/methodology/approach

The paper shows regress inflation sensitivities of returns on country indexes and international mutual funds on their sensitivities to world stock and bond indexes.

Findings

This paper shows the inflation sensitivity of a security is positively (negatively) related to its sensitivity to the world bond index (world stock index).

Research limitations/implications

The paper shows that while the model is applicable to individual securities as well as portfolios, it is tested using portfolios only.

Originality/value

The paper shows the results allow one to assess the inflation sensitivity of a security using its sensitivity to the bond and the stock market. The more bond‐like a security is, the higher its sensitivity to inflation.

Citation

Kim, M.K. and Shukla, R. (2006), "Inflation and bond‐stock characteristics of international security returns", International Journal of Managerial Finance, Vol. 2 No. 3, pp. 241-251. https://doi.org/10.1108/17439130610676493