The Relationship Between Inflation And Stock Return Revisited
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Relationship Between Inflation News and High Frequency Stock Returns
Author | : Lianqun Sun |
Publisher | : |
Total Pages | : |
Release | : 2013 |
Genre | : |
ISBN | : |
Increases or decreases in stock prices will determine how much an investor0́9s wealth will shrink or grow in the stock market. One set of important factors that influences the stock market is macroeconomic indicators, like inflation news. The Consumer Price Index (CPI) and The Producer Price Index (PPI) are among the most important measures of inflation conditions and overall economic conditions. Adams, McQueen and Wood have already identified the relationship between inflation news and stock return. In their paper published in 2004, they found the unexpected increases in both PPI and CPI could cause stock prices to fall. In their paper, they explored the responses of stock intraday data and the unexpected changes in the Producer Price Index and Consumer Price Index before and on the news announcement date from 1977 to 1987.
Relationship Between Inflation and Stock Returns - Evidence from BRICS Markets Using Panel Co Integration Test
Author | : Vanita Tripathi |
Publisher | : |
Total Pages | : 12 |
Release | : 2015 |
Genre | : |
ISBN | : |
Stocks are generally considered to be a good hedge against inflation because of their tendency to move together. This paper examines long term relationship between inflation and stock returns in BRICS markets using panel data for the period from March 2000 to September 2013. Correlation results reveal a significant negative relationship between stock index and inflation rate for Russia and a significantly positive relationship for India & China. ADF, PP and KPSS unit root tests indicate non-stationary characteristic of the data. Further we find no long term co-integrating relationship between stock index values and inflation rates using Pedroni panel co integration test. These findings have important implications for policy makers, regulators and investment community at large. There may seem to be short term contemporaneous relationship between inflation and equity returns but in the long run they do not seem to be significantly integrated. Changes in inflation may bring some short run movement in stock return but certainly equity does not seem to be a good hedge against inflation in long run at least in emerging BRICS markets.
Short Run Causal Relationship Between Inflation and Stock Returns - An Empirical Study of BRICS Markets
Author | : Vanita Tripathi |
Publisher | : |
Total Pages | : 13 |
Release | : 2015 |
Genre | : |
ISBN | : |
Equity investment is assumed to be a good hedge against inflation since long time. This paper examines short run causal relationship between inflation and stock return in emerging BRICS markets. The study covers a comprehensive period of 13 years from the year 2000 to 2013 using quarterly data. The regression results reveal a significant positive relationship between changes in inflation and stock returns only in case of Brazil. But, Granger causality results reveal unidirectional causality from stock return to changes in inflation in Russia, India and South Africa and bidirectional causality in China. Hence, there seem to be a cause and effect relationship between stock returns and inflation in emerging markets. The results are of pertinent importance in today's context where emerging markets are facing the problems of rising inflation and volatile stock returns. The policy regulators need to understand these dynamics between inflation and stock returns to ensure better regulation of the markets. For investors particularly large and institutional investors the study findings support trading based on inflation forecasts efficiency of Indian stock market.
Stock Returns and Inflation Revisited
Author | : Bong-Soo Lee |
Publisher | : |
Total Pages | : 35 |
Release | : 2009 |
Genre | : |
ISBN | : |
The stock return-inflation relation has been an important issue in financial economics. Several hypotheses have been proposed to explain the relation. Among these, the Modigliani and Cohn's inflation illusion hypothesis has received renewed attention recently. Another hypothesis is the two-regime hypothesis. We reexamine these hypotheses using long sample data. We find that the Modigliani and Cohn hypothesis can explain the post-war negative relation between stock returns and inflation, but it is not easily compatible with the pre-war positive relation. We confirm the presence of two regimes in the relation between the pre- and post-war periods using an alternative structural VAR identification method.
Unexpected Inflation and Stock Returns Revisited - Evidence from Israel
Author | : Yakov Amihud |
Publisher | : |
Total Pages | : |
Release | : 2008 |
Genre | : |
ISBN | : |
This paper examines the effects of unexpected inflation on stock prices, using Israeli data which provide a direct market-based measure of unexpected inflation: the price reaction of CPI-linked bonds following the CPI announcement. The results show that stock prices have a strong negative relationship with unexpected inflation. The Israeli setting rules out a number of hypotheses advanced in the United States to explain this relationship, such as nominal contracting, inflationary taxation, wealth transfer, and money illusion. This suggests that the negative effect of unexpected inflation is due to its negative association with real activity and its real economic cost.
The Relationship Between Stock Returns and Inflation
Author | : Choon Seng Lim |
Publisher | : |
Total Pages | : 148 |
Release | : 1989 |
Genre | : Inflation (Finance) |
ISBN | : |
The Role of Economic Activity in the Stock Return/inflation Relationship
Author | : Gary Stanley Moore |
Publisher | : |
Total Pages | : 346 |
Release | : 1989 |
Genre | : Inflation (Finance) |
ISBN | : |
Stock Returns, Inflation and Macroeconomy
Author | : Marc Chopin |
Publisher | : |
Total Pages | : 26 |
Release | : 2002 |
Genre | : |
ISBN | : |
We re-examine the inverse relationship between stock returns and inflation in the post- World War II period. Fama (1981) theorizes that the inverse inflation-stock return correlation is a proxy for the negative relationship between inflation and real activity. Geske and Roll (1983) argue that the inflation-stock return correlation reflects changes in government expenditures, real economic conditions and monetization of budget deficits. We test these hypotheses simultaneously using a multivariate vector-Error-Correction Model (VECM) proposed by Johansen and Juselius (1992, 1994). We find that both real activity and monetary fluctuations generate the contemporaneous correlation between stock returns and inflation. However, the Federal Reserve bank seems not to monetize Federal deficits, nor do government deficits appear to drive changes in real economic activity during the period examined. Thus, our results appear more compatible with Fama's explanation than that of Geske and Roll. More intriguingly, the sources of both real activity and monetary fluctuations are the long-run disequilibria of macroeconomy.
Economic Policy and the Great Stagflation
Author | : Alan S. Blinder |
Publisher | : Elsevier |
Total Pages | : 244 |
Release | : 2013-09-11 |
Genre | : Business & Economics |
ISBN | : 1483264564 |
Economic Policy and the Great Stagflation discusses the national economic policy and economics as a policy-oriented science. This book summarizes what economists do and do not know about the inflation and recession that affected the U.S. economy during the years of the Great Stagflation in the mid-1970s. The topics discussed include the basic concepts of stagflation, turbulent economic history of 1971-1976, anatomy of the great recession and inflation, and legacy of the Great Stagflation. The relation of wage-price controls, fiscal policy, and monetary policy to the Great Stagflation is also elaborated. This publication is beneficial to economists and students researching on the history of the Great Stagflation and policy errors of the 1970s.