Empirical studies have determined that over short periods of time, the average returns for stocks are
A) not correlated to either actual or expected rates of inflation.
B) directly correlated to the expected rate of inflation.
C) inversely correlated to both actual and expected inflation.
D) directly correlated to the historical rate of inflation.

Question

Quizplus · Accepted Answer

Empirical studies have shown that over short periods of time, the average returns for stocks are not correlated to either actual or expected rates of inflation. This suggests that inflation does not have a significant impact on stock returns over the short term. However, over the long term, inflation can have an impact on stock returns as it affects the purchasing power of earnings and dividends.

Empirical Studies Have Determined That Over Short Periods of Time