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Stock returns under hyperinflation: Evidence from China 1945–48

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  • Zhao, Liuyan

Abstract

This paper presents new evidence for the Fisher hypothesis, which states a positive relationship between nominal stock returns and inflation. We introduce a new data set from the episode of hyperinflation that occurred in China after World War II. To establish the reliability of our estimates we consider different frequencies, and time horizons and econometric models. The results reveal that stocks were a complete hedge against expected inflation and a partial hedge against unexpected inflation. In contrast to the empirical literature on the ‘stock return-inflation puzzle’, we find that the Fisher hypothesis is applicable to common stocks even with a short-horizon in the Chinese hyperinflation context.

Suggested Citation

  • Zhao, Liuyan, 2017. "Stock returns under hyperinflation: Evidence from China 1945–48," China Economic Review, Elsevier, vol. 45(C), pages 155-167.
    • Handle: RePEc:eee:chieco:v:45:y:2017:i:c:p:155-167
    DOI: 10.1016/j.chieco.2017.07.003
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    Cited by:

    1. Pandey, Dharen Kumar & Lucey, Brian M. & Kumar, Satish, 2023. "Border disputes, conflicts, war, and financial markets research: A systematic review," Research in International Business and Finance, Elsevier, vol. 65(C).
    2. Aviral Kumar Tiwari & Adeolu O. Adewuyi & Olabanji B. Awodumi & David Roubaud, 2022. "Relationship between stock returns and inflation: New evidence from the US using wavelet and causality methods," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4515-4540, October.
    3. Bošnjak Mile & Novak Ivan & Bašić Maja, 2021. "Capital Market Returns and Inflation Nexus in Croatia: Wavelet Coherence Analysis," Business Systems Research, Sciendo, vol. 12(2), pages 253-267, December.
    4. Guo, Yibei & Dong, Baomin, 2020. "Where is the beef? The costs of American aid and wartime China's hyperinflation," China Economic Review, Elsevier, vol. 61(C).
    5. Xiaojing Song & Thu Phuong Truong & Mark Tippett & John van der Burg, 2022. "The quantity theory of stock prices," The European Journal of Finance, Taylor & Francis Journals, vol. 28(17), pages 1685-1707, November.

    More about this item

    Keywords

    Stock return; Hyperinflation; The Fisher hypothesis;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East

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