Effects of Nominal Contracting On Stock Returns

Cover Effects of Nominal Contracting On Stock Returns
Effects of Nominal Contracting On Stock Returns
Richard S Ruback
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E. , the change in the stock price divided by S. ), 1, L - 1 dividing the monetary position variables by S. Puts all of the 1, t- 1 variables in the same units of measurement. The coefficient of the long-term monetary position, a, measures the effect of unexpected inflation on the value of these long-term contracts. Likewise, a_ and a, measure the effects of unexpected inflation on the value of the nominal tax shields and the short-term monetary position, respectively. Estimating a, a_, and a a...voids the problem of combining these categories into a single measure of the monetary position of the firm and lets the data determine the effect of using contracts with different maturities. Equation (9) can be substituted into (8) to allow the sensitivity to unexpected inflation to vary as the nominal contract position of firm i changes over time 13 ^t = ^Oi * ^li^ * LMP "Oi ' ^ i. T-1 TAX.
S.
+ a.
i. T-1 SMP.
i, t-l S.
+ a.
i, t-r i, t-l i, t-l "t^^it e / ^^^i i- ^\ I TAX. , \ / SMP.
+ a.
i, t-l \ i, t-l |u^ -^ e.^, t=l, ...


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