Statistical Method for Predicting Stock Resilience to Inflation

This document is a research article that presents a statistical method for predicting the vulnerability or resilience of individual stocks to positive inflation shocks. The authors propose a framework that generates individual inflation robustness scores by comparing a stock's characteristics to those of stocks that have historically performed well or poorly during inflation events. The methodology captures nonlinear relationships between firm attributes and inflation sensitivity, allowing for adaptive analysis. The study includes out-of-sample tests demonstrating that these robustness scores effectively predict stock returns during 65 inflation events from May 2008 to March 2025. The findings suggest that investors can utilize this approach to construct portfolios with inflation-robust stocks, potentially enhancing performance during inflationary periods. The article also reviews existing literature on the relationship between inflation and equities, emphasizing the complexities involved in predicting stock performance in inflationary environments.