Compounding Money and Nominal Price Illusions

• 成果类型: Article
• 署名作者: Caglayan, Mustafa O.; Duarte, Diogo; Duarte, Victor F.; Lu, Xiaomeng
• 署名单位: State University System of Florida; Florida International University; University of Illinois System; University of Illinois Urbana-Champaign; University System of Georgia; Georgia College & State University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.03549
• 发表日期: 2025
• 关键词: Money illusion; nominal price illusion; inflation; Fed model

摘要

We develop a general equilibrium model in which investors simultaneously experience money and nominal price illusions. We show that the combined effects of these illusions widen the gap between the elasticities of the earnings yield of low-and highpriced stocks relative to the nominal interest rate. Empirically, we show that the compounded effects of money and nominal price illusions are stronger for low-priced stocks during periods of high inflation and economic downturns and for stocks with low institutional ownership. Our findings are robust when controlling for valuation uncertainties of low-priced stocks, including idiosyncratic volatility and firm age.