Stock Market Investment and Inflation: Evidence from the United States and Canada

Janesh Sami
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Janesh Sami: "The University of the South Pacific, Suva, Fiji Islands"

Review of Economic Analysis, 2021, vol. 13, issue 3, 339-365

Abstract: "This paper examines the long-run relationship between goods prices and stock prices to understand whether stock market investment can help hedge against inflation in the United States (US) and Canada. This study employed an autoregressive distributed lag (ARDL) cointegration test developed by Pesaran, Shin, and Smith (2001), and finds evidence of a positive long-run economic relationship between stock prices and goods prices in both economies over the sample period 1960 to 2019. The long-run elasticity is above one for both economies implying that the developments in the goods market significantly affect the stock market. We undertake a suite of sensitivity checks and find robust evidence that the stock market investment can help hedge against inflation in the United States and Canada."

Keywords: "Stock prices; Goods prices; Cointegration; Inflation; Stock Market Investment" (search for similar items in EconPapers)
JEL-codes: C22 C32 E31 G10 G11 G15 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ren:journl:v:13:y:2021:i:3:p:339-365

DOI: 10.15353/rea.v13i3.4047

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