An Empirical Analysis of the Stock Hedge Hypothesis: Evidence from the Zimbabwe Stock Exchange for the Period 1980 to 2008

Michael Kamoyo, Brian Hove and Maxwell Chufama

Journal of Empirical Economics, 2015, vol. 4, issue 5, 285-297

Abstract: This research assesses the ability of stock prices to hedge investors against inflation. A vector-error-correction model was used to establish whether investing on the Zimbabwe stock market hedge investors against inflation. The results obtained from this long-run analysis suggest evidence for the ability of stocks to hedge against the erosion of purchasing power. However, the study noted that stock prices were responding positively to inflation when real economic activity was declining, pointing to the speculative behaviour on the stock market and the impending risk for a stock market bubble burst. Therefore, investors on stock exchanges must not focus only on hedging against inflation without considering the safety of their investments by taking precautionary measures to limit exposure to the impending stock market bubble burst.

Keywords: inflation; stock prices; stock hedge hypothesis (search for similar items in EconPapers)
Date: 2015
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