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Inflation and Stock Market Returns:Some Australian Evidence

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  • ANTHONY SAUNDERS
  • RICHARD B. TRESS

Abstract

This paper analyzes the relationship between Australian stock returns and inflation over the period 1965‐79. The effects of inflation in a ‘rational investor’ valuation framework are discussed. Empirical tests suggest that nominal stock returns and inflation are related in a significantly negative fashion, implying that stocks have been extremely poor inflationary hedges for the investor over the period. In addition, Granger‐Sims tests of causality indicate a mainly unidirectional relationship between inflation and stock returns, with price level charges leading the equity index in time.

Suggested Citation

  • Anthony Saunders & Richard B. Tress, 1981. "Inflation and Stock Market Returns:Some Australian Evidence," The Economic Record, The Economic Society of Australia, vol. 57(1), pages 58-66, March.
    • Handle: RePEc:bla:ecorec:v:57:y:1981:i:1:p:58-66
    DOI: 10.1111/j.1475-4932.1981.tb01700.x
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    References listed on IDEAS

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    Cited by:

    1. Basse, Tobias & Wegener, Christoph, 2022. "Inflation expectations: Australian consumer survey data versus the bond market," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 416-430.

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