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Stock Market Investment and Inflation: Evidence from the United States and Canada

Author

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  • Janesh Sami

    ("The University of the South Pacific, Suva, Fiji Islands")

Abstract

"This paper examines the long-run relationship between goods prices and stock prices to understand whether stock market investment can help hedge against inflation in the United States (US) and Canada. This study employed an autoregressive distributed lag (ARDL) cointegration test developed by Pesaran, Shin, and Smith (2001), and finds evidence of a positive long-run economic relationship between stock prices and goods prices in both economies over the sample period 1960 to 2019. The long-run elasticity is above one for both economies implying that the developments in the goods market significantly affect the stock market. We undertake a suite of sensitivity checks and find robust evidence that the stock market investment can help hedge against inflation in the United States and Canada."

Suggested Citation

  • Janesh Sami, 2021. "Stock Market Investment and Inflation: Evidence from the United States and Canada," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 13(3), pages 339-365, October.
    • Handle: RePEc:ren:journl:v:13:y:2021:i:3:p:339-365
    DOI: https://doi.org/10.15353/rea.v13i3.4047
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    More about this item

    Keywords

    Stock prices; Goods prices; Cointegration; Inflation; Stock Market Investment;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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