o.menary11
Active Member
Hi,
I am a bit confused on what the factors are that can influence the expected return on equity investments.
While the notes state that equity is indifferent to interest rates and inflation: "Equity markets should be reasonably indifferent towards high nominal interest rates and high inflation. If the rate of inflation is high, the rate of dividend growth would be expected to increase in line with the return demanded by investors."
It also references that the "expectations of real interest rates and inflation" will influence the level of the equity market.
Is the difference due to the investors expectations of future inflation/interest rates. Therefore, if an investor expects inflation to be high, the demand for equity investment will increase (to hedge inflation), hence demand/price increases. (what impact, if any does this have on the return?)
Also, if an investor already hold the asset, are they indifferent to changes in inflation as they are protected?
Or have i confused the return and level of equity investments? if so, what is the "level" of the equity market?
Thanks!
I am a bit confused on what the factors are that can influence the expected return on equity investments.
While the notes state that equity is indifferent to interest rates and inflation: "Equity markets should be reasonably indifferent towards high nominal interest rates and high inflation. If the rate of inflation is high, the rate of dividend growth would be expected to increase in line with the return demanded by investors."
It also references that the "expectations of real interest rates and inflation" will influence the level of the equity market.
Is the difference due to the investors expectations of future inflation/interest rates. Therefore, if an investor expects inflation to be high, the demand for equity investment will increase (to hedge inflation), hence demand/price increases. (what impact, if any does this have on the return?)
Also, if an investor already hold the asset, are they indifferent to changes in inflation as they are protected?
Or have i confused the return and level of equity investments? if so, what is the "level" of the equity market?
Thanks!