Previous research using daily returns finds conflicting evidence about the relationship between unanticipated inflation (news) and stock returns. We explore the relationship by looking at the response (in minutes and trades) of size-based stock portfolios to unexpected changes in the regularly scheduled Producer Price Index and Consumer Price Index announcements. In particular, we answer the following three questions: (1) Do stocks respond to inflation news? (2) What is the speed and path of that response? (3) Is the response stable or does it vary with the economy, the direction of the news, or time?
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Adams et al. (2004) studied this question.
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