Three Essays on Stock Market Anomalies: the Correlation Between Stock Returns and Inflation and the Predictability of Stock Returns

Stock market anomalies are empirical findings that cannot be explained by the widely-accepted financial theories. It is important to study such anomalies because understanding them can greatly improve our understanding of financial markets. This book studies two of the most important anomalies in recent history: the correlation between stock returns and inflation and the predictability of stock returns. Chapter 1 is an introduction. In Chapter 2, I develop a generalized theoretical model and utilize it to investigate the changing stock return-inflation relationship in the US. In Chapter 3, I propose a new statistical test for autocorrelation that is particularly useful for testing the recent behavioral models. When the test is applied to the data, contrary to the previous research, I find evidence supporting the behavioral models. In Chapter 4, I investigate the stock reaction to the market-wide information and find further evidence in support of the recent behavioral models. This book extends the literature, and should be useful to investment practitioners and researchers in empirical asset pricing and behavioral finance.