Graduation Year

2025

Date of Submission

12-2024

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Eric Hughson

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© 2024 Casper Kornelis Hoving

Abstract

This paper analyzes the cross-sectional differences of how unexpected inflation affects industry returns, controlling for market factors and firm characteristics. The methodology builds upon Bernard (1986) in trying to explain and detect differing cross-sectional effects by industry, but instead considers daily reactions to the release of monthly CPI figures. My hypothesis was that higher unexpected inflation would have a negative effect on industry returns but when controlling for market factors and firm characteristics the reactions would be dampened. The findings of this study confirm that higher unexpected inflation tends to have a negative effect on market returns, but show mixed implications for industry returns when controlling for market factors. Furthermore, the inclusion of firm characteristics did not have the anticipated effect, indicating that included systematic variables may have captured a significant portion of the variance in industry returns.

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Economics Commons

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