Can Canadian Stock market provide complete hedge against Inflation ?

Malika Neifar and Amira HarzAllah

MPRA Paper from University Library of Munich, Germany

Abstract: This study empirically assesses the relationship between inflation and stock return in Canadian stock market. The study has covered data for the period 1999 :M1−2018 :M4 of canadian economy. Inflation has been decomposed to predicted and unpredicted phase by MA filter. First it has tested three hypothesis within static model : Fisher hypothesis, Fama and Schwert approach, and Fama’s proxy effect framework. These investigations support Fisher Hypothesis. It has showed that Canadian stock market provides a complete hedge against Inflation. Second, since relationships between Stock price and inflation may not be correctly specified in the static linear regression, linear and non linear autoregressive dynamic specification have been tested. ARDL and NARDL model with Expected inflation as regressor conclude that Stock price cannot be used as a hedge against inflation. Finding of NARDL precise that only partial sum of the negative changes in Expected inflation have significant effect on canadian stock market. Then inefficiency of the canadian stock market suggests that information on past values of inflation could provide opportunities for abnormal gains from the canadian stock market.

Keywords: Static model; Fisher hypothesis; Stock price; Expected inflation, cointegration, Dynamic model, ARDL, NARDL, symmetrie, asymmetrie. (search for similar items in EconPapers)
JEL-codes: C32 G1 G12 G14 (search for similar items in EconPapers)
Date: 2020-03-13
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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