Investor Behavior and Flow-Through Capability in the US Stock Market

Abstract

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This paper analyzes investor behavior depending on the flow-through capability in the US stock market, because investors seek protection from inflation rate changes, and the flow-through capability (a firm’s ability to transmit inflation shocks to the prices of its products and services) is a key factor in investment decisions. Our estimates of the flow-through capability of firms listed on the US stock exchange at the sector level are significantly different among industries, and we demonstrate a direct relationship between changes in stock prices (at the sector level) and flow-through capability. These results would be relevant because they have important implications on investor behavior.

Keywords

• Inflation rate
• Stock return
• Investor behavior
• Sectoral analysis
• Flow-through capability