Stock returns and inflation: a tale of two periods in India

Niyati Bhanja () and Arif Dar

Economic Change and Restructuring, 2019, vol. 52, issue 4, No 4, 413-438

Abstract: Abstract The relationship between stock returns and inflation has been tested in relation to hedge ability of stocks against inflation. The study covers a period of over five decades (1960–2014) and examines both pre- and post-structural economic reform experiences in India. This empirical analysis exploits the techniques of both Discrete and Continuous wavelet transforms. In the methodological framework of Wavelets, first it analyses the individual volatility characteristics of stock returns and inflation using wavelet power spectra, followed by their relationship at different time horizons. The empirical evidence suggests the two variables to be independent across time horizons lending support to stocks as instrument of hedge against inflation. The results are robust to techniques and sub-samples, as well.

Keywords: Hedge; Wavelet; Stock prices; Inflation (search for similar items in EconPapers)
JEL-codes: C40 E31 G10 G12 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10644-018-9231-z

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