Seminar (Dept. of Finance)

Title: Inflation Forecasting from Cross-Sectional Stocks

Speaker: Hong Yurong, Assistant Professor, SAIF, Shanghai Jiaotong University

Time: 10:00-11:30, March 15, 2024(Friday)

Venue: Room 502, Mingde Business Building

Language: English

ABSTRACT:

We document strong and unique inflation forecastability using the relative pricing between stocks with high- and low-inflation exposures. We construct the stock-level headline- and core-focused inflation betas by taking advantage of the fact that stock returns exhibit persistent sensitivity to headline-CPI shocks during the calendar month of CPI, and to core-CPI news on CPI announcement days. Above and beyond the existing forecasting methods, our stock-based portfolios contain fresh and non-redundant predictive information, indicating active price discovery on inflation in cross-sectional stocks. The core-focused forecasting portfolio emerges as a unique and unparalleled predictor for core inflation, whose predictive power and economic significance increase dramatically during the inflation surge of 2021 and 1973. Moreover, our stock-based information is not incorporated by economists in their inflation forecasts, whose room for improvement is especially large during 2021-22. We also find stronger predictability under Fed’s QE and when the Fed is behind-the-curve in fighting inflation.

SHORT BIOGRAPHY:

Yurong Hong is an assistant professor of finance at SAIF Shanghai Jiaotong University. She obtained her Ph.D.in Finance from LSK Business School HKUST. Her research interests lie in Empirical Asset Pricing, Asset Management. Her work has been published in the Management Science and Journal of Financial and Quantitative Analysis.