US Inflation and the Returns in Global Stock and Bond Markets

“This study examines the relation between US inflation and the returns on stock and bond indices. The indices include both US and world ex-US versions. The non-US indices are included to assess the extent to which securities in other countries have been impacted by US inflation. The results indicate that the link between US inflation and the returns of non-US stocks and bonds has been weak. US Treasury bills have been positively related to both expected and unexpected inflation, while US bonds have been negatively related to unexpected inflation. The relation between US stocks and inflation has been weak, and this result has persisted even when inflation is divided into expected and unexpected components.”