The adjustments of stock prices to information about inflation: evidence from MENA countries

Samer Al-Rjoub

Applied Economics Letters, 2005, vol. 12, issue 14, 871-879

Abstract: This study extends the empirical evidence by analysing the reaction of monthly stock returns to the unexpected portion of CPI inflation rate and by capturing the asymmetric shocks to volatility of unexpected inflation in five MENA countries. Both Threshold GARCH and Exponential GARCH are used to catch the news affect that unexpected inflation may have on stock returns. Results document a negative and strongly significant relationship between unexpected inflation and stock returns in MENA countries. Results also indicate that the stock markets of the listed MENA countries do not feel the high up and down movements in the markets and as such the volatilities. The asymmetric news effect is absent.

Date: 2005
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DOI: 10.1080/13504850500365806

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