Creator of Knowledge
Information Resources Management Association
Advancing the Concepts & Practices of Information Resources Management in Modern Organizations

Inflation and the Stock Market: Money Illusion in Borsa Istanbul

Inflation and the Stock Market: Money Illusion in Borsa Istanbul
View Sample PDF
Author(s): Cenk C. Karahan (Boğaziçi University, Turkey)and Han N. Özsöylev (Özyeğin University, Turkey)
Copyright: 2023
Pages: 17
Source title: Managing Inflation and Supply Chain Disruptions in the Global Economy
Source Author(s)/Editor(s): Ulas Akkucuk (Bogazici University, Turkey)
DOI: 10.4018/978-1-6684-5876-1.ch003


View Inflation and the Stock Market: Money Illusion in Borsa Istanbul on the publisher's website for pricing and purchasing information.


The stock market suffers from money illusion, discounting real cash flows at nominal discount rates. Subsequent research has also shown that the cross-section of stock returns is impacted differently by inflation. This cross-sectional variance across risky and safe stocks makes one of the most puzzling anomalies, risk (beta) anomaly, stronger in inflationary periods. This chapter tests the hypothesis that higher inflation leads to stronger mispricing of risk in stock market due to money illusion effect in Turkey, one of the emerging countries afflicted with perennial high inflation. The results show that although money illusion and mispricing were not visibly present in hyper-inflationary period in 1990s, the anomalous pricing of risky securities was remarkably high in inflationary periods over the last two decades, with a distinct mispricing due to the inflationary pressure that commenced with the COVID-19 pandemic. These varying results across the vastly different inflation regimes can be explained by rational inattention and impact of past experience of inflation on investment behavior.

Related Content

Hamed Nozari. © 2024. 13 pages.
Maryam Rahmaty. © 2024. 13 pages.
Mahmonir Bayanati. © 2024. 13 pages.
Kamalendu Pal. © 2024. 33 pages.
Kamalendu Pal. © 2024. 35 pages.
Aminmasoud Bakhshi Movahed, Ali Bakhshi Movahed, Hamed Nozari. © 2024. 31 pages.
Esmael Najafi, Iman Atighi. © 2024. 11 pages.
Body Bottom