High Inflation: Low Default Risk and Low Equity Valuations

• 成果类型: Article
• 署名作者: Bhamra, Harjoat S.; Dorion, Christian; Jeanneret, Alexandre; Weber, Michael
• 署名单位: Imperial College London; Centre for Economic Policy Research - UK; Universite de Montreal; HEC Montreal; Center for Economic & Policy Research (CEPR); University of Chicago; National Bureau of Economic Research
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhac021
• 发表日期: 2023
• 页码: 1192
• 关键词: STOCK RETURNS; term structure; credit spreads; sticky prices; asset returns; common; bond; consumption; puzzles; MARKET

摘要

We develop an asset pricing model with endogenous corporate policies that explains how inflation jointly affects real asset prices and corporate default risk. Our model includes two empirically founded nominal rigidities: fixed nominal debt coupons (sticky leverage) and sticky cash flows. These two frictions result in lower real equity prices and credit spreads when expected inflation rises. A decrease in expected inflation has opposite effects, with even larger magnitudes. In the cross-section, the model predicts that the negative impact of higher expected inflation on real equity values is stronger for low leverage firms. We find empirical support for the model's predictions.