Does inflation affect sensitivity of investment to stock prices? Evidence from emerging markets

Omar Farooq and Neveen Ahmed

Finance Research Letters, 2018, vol. 25, issue C, 160-164

Abstract: This paper uses data from 37 emerging markets and shows that investment of firms headquartered in countries with higher inflation is significantly less sensitive to their stock prices than that of firms headquartered in countries with lower inflation. We argue that stock prices are less informative in countries with high inflation. As a result, managers are less likely to use stock prices in their investment decisions, thereby lowering sensitivity of investment to stock prices in countries with higher inflation.

Keywords: Inflation; Stock prices; Capital expenditures; Emerging markets (search for similar items in EconPapers)
JEL-codes: G31 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:25:y:2018:i:c:p:160-164

DOI: 10.1016/j.frl.2017.10.019

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