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The adjustments of stock prices to information about inflation: evidence from MENA countries

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  • Samer Al-Rjoub

Abstract

This study extends the empirical evidence by analysing the reaction of monthly stock returns to the unexpected portion of CPI inflation rate and by capturing the asymmetric shocks to volatility of unexpected inflation in five MENA countries. Both Threshold GARCH and Exponential GARCH are used to catch the news affect that unexpected inflation may have on stock returns. Results document a negative and strongly significant relationship between unexpected inflation and stock returns in MENA countries. Results also indicate that the stock markets of the listed MENA countries do not feel the high up and down movements in the markets and as such the volatilities. The asymmetric news effect is absent.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 12 (2005)
Issue (Month): 14 ()
Pages: 871-879

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Handle: RePEc:taf:apeclt:v:12:y:2005:i:14:p:871-879

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  1. Bodie, Zvi, 1976. "Common Stocks as a Hedge against Inflation," Journal of Finance, American Finance Association, vol. 31(2), pages 459-70, May.
  2. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
  3. Jaffe, Jeffrey F & Mandelker, Gershon, 1976. "The "Fisher Effect" for Risky Assets: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 31(2), pages 447-58, May.
  4. Arjun Chatrath & Sanjay Ramchander & Frank Song, 1997. "Stock prices, inflation and output: evidence from India," Applied Financial Economics, Taylor & Francis Journals, vol. 7(4), pages 439-445.
  5. Kaul, Gautam, 1987. "Stock returns and inflation : The role of the monetary sector," Journal of Financial Economics, Elsevier, vol. 18(2), pages 253-276, June.
  6. Hardouvelis, Gikas A., 1987. "Macroeconomic information and stock prices," Journal of Economics and Business, Elsevier, vol. 39(2), pages 131-140, May.
  7. Balduzzi, Pierluigi, 1995. "Stock returns, inflation, and the 'proxy hypothesis': A new look at the data," Economics Letters, Elsevier, vol. 48(1), pages 47-53, April.
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