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Stock returns and inflation: a tale of two periods in India

Author

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  • Niyati Bhanja

    (MICA - The School of Ideas)

  • Arif Billah Dar

    (Shri Mata Vaishno Devi University)

Abstract

The relationship between stock returns and inflation has been tested in relation to hedge ability of stocks against inflation. The study covers a period of over five decades (1960–2014) and examines both pre- and post-structural economic reform experiences in India. This empirical analysis exploits the techniques of both Discrete and Continuous wavelet transforms. In the methodological framework of Wavelets, first it analyses the individual volatility characteristics of stock returns and inflation using wavelet power spectra, followed by their relationship at different time horizons. The empirical evidence suggests the two variables to be independent across time horizons lending support to stocks as instrument of hedge against inflation. The results are robust to techniques and sub-samples, as well.

Suggested Citation

  • Niyati Bhanja & Arif Billah Dar, 2019. "Stock returns and inflation: a tale of two periods in India," Economic Change and Restructuring, Springer, vol. 52(4), pages 413-438, November.
    • Handle: RePEc:kap:ecopln:v:52:y:2019:i:4:d:10.1007_s10644-018-9231-z
    DOI: 10.1007/s10644-018-9231-z
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    More about this item

    Keywords

    Hedge; Wavelet; Stock prices; Inflation;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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