Multi factor models - Macroeconomic model and Inflation (Please HELPPP)

[jgonnz]

In a multi factor model such as the one below

R_i = a_i + b_i1F_INFL + b_i2F_GDP + ε__i_

The CFAI text states:

The risk premium for the inflation factor, however, is typically negative. Thus, an asset with a positive sensitivity to the inflation factor (an asset with returns that tend to be positive in response to unexpectedly high inflation) would have a lower required return than if its inflation sensitivity were negative; an asset with positive sensitivity to inflation would be in demand for its inflation-hedging ability.

But I am confused.

If: b_i1 > 0 and F_INFL is greater than expected (actual - expected) > 0

Then should the required return be higher?

I believe I am interpreting F_INFL completely incorrectly. Please help

[asrmek]

I’m wondering the same thing

[Harrogath]

Isn’t F _INFL modeled as (expected - actual) instead?

I will check the book.

[quietcloud]

The same problem here…Does it depend on Ex-ante or Ex-post?

[self_employed]

F_infl is negative in general. Hence positive b_i1 makes R_i lower, and vice versa.