Empirical Analysis of Effects of Expected Inflation on Stock Returns

Farwa Abbas and Ahsan Ul Haq Satti ()
Additional contact information
Ahsan Ul Haq Satti: Pakistan Institute of Development Economics (PIDE), Islamabad, Pakistan.

Pakistan Journal of Economic Studies, 2019, vol. 2, issue 1, 71-98

Abstract: In this paper, we adopted asymmetric test specification model to investigate implications of expected inflation on stock returns in Pakistan. While to calculate expected inflation, two methods, Fama money demand model (1981) and ARMA model were employed on monthly data covering time span from August 1998 to June 2018. The results show a strong relationship between real stockreturns (adjusted frominflation) and expected inflation while utmost an insignificant relationship between nominal stock returns and predicted inflation. An inverse relationship amidst stock returns and inflation is observed during only low inflation time period in contrast tohigh inflation time period (positive relationship). The impact of expected inflation on stock returns by dividing the sample period into sub periods provides insignificant relationship between stock returns and expected inflation which is obvious as stockreturns behaves noisy in short time period.

Keywords: Expected Inflation; Stock Returns; Fama Money Demand Model; ARMA (search for similar items in EconPapers)
JEL-codes: C58 E31 E44 G41 R53 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://journals.iub.edu.pk/index.php/pjes/article/view/17/39 (application/pdf)
https://journals.iub.edu.pk/index.php/pjes/article/view/17 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:akw:iupjes:v:2:y:2019:i:1:p:71-98

Access Statistics for this article

More articles in Pakistan Journal of Economic Studies from Department of Economics, The Islamia University of Bahawalpur, Pakistan.
Bibliographic data for series maintained by Dr. Altaf Hussain ().