This dissertation reexamines Nominal Contracting Hypothesis with surveyed data of inflationary forecasts. Survey of Professional Forecasters shows that forecasters consistently underestimated inflation for the years of 1969--81, and consistently overestimated inflation for the years of 1982--93. This allows us to see the long-term relationship between stock returns and balance sheet variables. It also enables us to test this relationship directly without estimating expected inflation. Besides the nominal contract variables, some real asset accounts from the balance sheet are included so we can have a more complete understanding of the valuation issue caused by inflation. The findings are inconsistent with Nominal Contracting Hypothesis. Long-term debt appears to hurt a firm's stock price when inflation rate is higher than expected. Pension liability does not bear much statistical significance. Nor does inventory. Property, plant and equipment appears to benefit a firm's stock price when inflation rate is surprisingly high. Some possible explanations are given
