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Can Common Stocks Provide Hedge against Inflation? Evidence from SAARC Countries

Syed Zulfiqar Ali Shah, Zafar Moeen Nasir and Muhammad Naeem
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Syed Zulfiqar Ali Shah: International Islamic University, Islamabad
Zafar Moeen Nasir: Pakistan Institute of Development Economics, Islamabad
Muhammad Naeem: International Islamic University, Islamabad.

The Pakistan Development Review, 2012, vol. 51, issue 4, 435-448

Abstract: Economists and financial analysts have always wondered whether or not investment in common stocks can provide hedge against inflation. In this paper we empirically tested this relationship between stock returns and inflation rate to assess the extent, if any, to which investment in common stocks provides a hedge against inflation in SAARC countries. Monthly data was used from period 1993 to 2011, employing ADF and PP test for unit root testing. By applying the ARDL bound testing approach we found that all countries included in the sample show a long run relationship between stock returns and inflation. We also applied ECM test which is significant in our result. It was also tested whether the relationship that exists between the two is a long term relationship or merely short term one. The findings were somewhat mixed

Keywords: Stock Return; Inflation (search for similar items in EconPapers)
JEL-codes: C20 E31 (search for similar items in EconPapers)
Date: 2012
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Handle: RePEc:pid:journl:v:51:y:2012:i:4:p:435-448