The Impact of Inflation Measures on the Real Returns and Risk of U.S. Stocks

Using different inflations measures produces economically significant differences in both the inflation record and inflation-adjusted stock returns. We introduce a more consistent measure of the monthly CPI inflation rate to better measure real returns over 1913-2004, for which the official CPI exists. We also extend the series backward to 1871 on a monthly basis, an important addition to the data series. We analyze the impact of inflation on the real standard deviation of stock returns and find that, in contrast to the results for geometric mean returns, inflation adjustments have little impact on estimates of return variability