Inflation, output, and stock prices: Evidence from two major emerging markets

Bahram Adrangi (), Arjun Chatrath and Kambiz Raffiee

Journal of Economics and Finance, 1999, vol. 23, issue 3, 266-278

Abstract: Research in economics and finance documents a puzzling negative relationship between stock returns and inflation rates in markets of industrialized economies. The present study investigates this relationship for Korea and Mexico. We show that the negative relationship between the real stock returns and unexpected inflation persists after purging inflation of the effects of the real economic activity. Johansen and Juselius cointegration tests verify that the long-run equilibrium between stock prices and general price levels is weak. However, in both economies, stock prices and general price levels seem to show a strong long-run equilibrium with the real economic activity. Copyright Springer 1999

Date: 1999
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DOI: 10.1007/BF02757711

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