Hi

This is a basic question but thought someone in macroeconomics or finance (or any related discipline) may help provide an appropriate answer.

I understand that converting a nominal level series into a real level series (i.e., price adjusted) can be done by deflating the nominal series

Code:
gen real= nominal/price_deflator
However, if the series is nominal stock returns and I want to convert it into real stock returns, would it make sense to simply subtract inflation:

Code:
gen inflation=(price_deflator-L.price_deflator)/L.price_deflator

gen real_stock_return=nominal_stock_return - inflation
I hope someone can help