Stock Returns-Inflation Relation In India, 1980-2004
This study contributes to the stock returns-inflation relation literature in developing countries by revisiting the issue with reference to an emerging economy, namely India. More specifically, it tests whether the Indian stock market provides an effective hedge against inflation using monthly data on real stock return, inflation and real activity from April 1980 to March 2004 and a two-step estimation procedure. Results of the study indicate that (i) the Indian stock market reflects future real activity; (ii) the negative stock returns-inflation relation emerges from the unexpected component of the inflation and (iii) this negative relation vanishes when we control for the inflation-real activity relation, thereby providing a strong support for Fama’s proxy effect hypothesis. The split period analyses provided support for accepting Fama’s hypothesis only in pre-reform period. In the post reform period, stock market serves as a hedge against inflation.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 9 (2009)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.usc.es/economet/eaa.htm|
|Order Information:|| Web: http://www.usc.es/economet/info.htm Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Firth, Michael, 1979. "The Relationship between Stock Market Returns and Rates of Inflation," Journal of Finance, American Finance Association, vol. 34(3), pages 743-49, June.
- Martin Feldstein, 1978.
"Inflation and the Stock Market,"
NBER Working Papers
0276, National Bureau of Economic Research, Inc.
- Martin Feldstein, 1983. "Inflation and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 186-198 National Bureau of Economic Research, Inc.
- Feldstein, Martin, 1980. "Inflation and the Stock Market," American Economic Review, American Economic Association, vol. 70(5), pages 839-47, December.
- Ram, Rati & Spencer, David E, 1983. "Stock Returns, Real Activity, Inflation, and Money: Comment," American Economic Review, American Economic Association, vol. 73(3), pages 463-70, June.
- Fama, Eugene F, 1982. "Inflation, Output, and Money," The Journal of Business, University of Chicago Press, vol. 55(2), pages 201-31, April.
- Floros, C., 2004. "Stock Returns and Inflation in Greece," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 4(2).
- Geske, Robert & Roll, Richard, 1983. " The Fiscal and Monetary Linkage between Stock Returns and Inflation," Journal of Finance, American Finance Association, vol. 38(1), pages 1-33, March.
- Aarstol, Michael, 2000. "Inflation, agency costs, and equity returns," Journal of Economics and Business, Elsevier, vol. 52(5), pages 387-403.
- Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September.
- Lintner, John, 1975. "Inflation and Security Returns," Journal of Finance, American Finance Association, vol. 30(2), pages 259-80, May.
- Gultekin, N Bulent, 1983. " Stock Market Returns and Inflation: Evidence from Other Countries," Journal of Finance, American Finance Association, vol. 38(1), pages 49-65, March.
- Bodie, Zvi, 1976. "Common Stocks as a Hedge against Inflation," Journal of Finance, American Finance Association, vol. 31(2), pages 459-70, May.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eaa:aeinde:v:9:y:2009:i:1_17. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (M. Carmen Guisan)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.