Expected inflation and U.S. stock sector indices: A dynamic time-scale tale from inflationary and deflationary crisis periods

Elie Bouri, Ramzi Nekhili, Harald Kinateder and Tonmoy Choudhury

Finance Research Letters, 2023, vol. 55, issue PA

Abstract: This paper analyses the co-movement between changes in expected inflation and U.S. stock sector returns utilizing a wavelet local multiple correlation approach, which records temporal evolution and potential correlation dynamics at various frequencies. Using daily data from January 2, 2003 to December 30, 2022, we find insignificant correlations in the short term but heterogeneous correlations in longer time periods. After the deflationary GFC period, quantitative easing has turned the long-term correlation negative in some sectors, and since COVID-19, the correlation has been positive. However, energy and materials are pro-inflation sectors in the medium and long term.

Keywords: U.S. inflation; U.S. stock sector returns; Wavelet local multiple correlation (WLMC) approach; Global financial crisis (GFC); COVID-19 pandemic; Russia-Ukraine war (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002180

DOI: 10.1016/j.frl.2023.103845

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