Relationship between Inflation and Stock Returns – Evidence from BRICS Markets Using Panel Co Integration Test

International Journal of Accounting and Financial Reporting, Vol 4, No. 2, Dec 2014, pp 647-658

12 Pages Posted: 12 May 2015

See all articles by Vanita Tripathi

Vanita Tripathi

University of Delhi India - Delhi School of Economics - Department of Commerce

Arnav Kumar

University of Delhi - Delhi School of Economics - Department of Commerce

Date Written: December 1, 2014

Abstract

Stocks are generally considered to be a good hedge against inflation because of their tendency to move together. This paper examines long term relationship between inflation and stock returns in BRICS markets using panel data for the period from March 2000 to September 2013. Correlation results reveal a significant negative relationship between stock index and inflation rate for Russia and a significantly positive relationship for India & China. ADF, PP and KPSS unit root tests indicate non-stationary characteristic of the data. Further we find no long term co-integrating relationship between stock index values and inflation rates using Pedroni panel co integration test. These findings have important implications for policy makers, regulators and investment community at large. There may seem to be short term contemporaneous relationship between inflation and equity returns but in the long run they do not seem to be significantly integrated. Changes in inflation may bring some short run movement in stock return but certainly equity does not seem to be a good hedge against inflation in long run at least in emerging BRICS markets.

Keywords: BRICS, Stock Index, Inflation, Unit root test, Pedroni Panel Co integration Test, Johansen Co integration Test

JEL Classification: G12, G14

Suggested Citation

Tripathi, Vanita and Kumar, Arnav, Relationship between Inflation and Stock Returns – Evidence from BRICS Markets Using Panel Co Integration Test (December 1, 2014). International Journal of Accounting and Financial Reporting, Vol 4, No. 2, Dec 2014, pp 647-658. Available at SSRN: https://ssrn.com/abstract=2605375

Vanita Tripathi (Contact Author)

University of Delhi India - Delhi School of Economics - Department of Commerce ( email )

Department of Commerce
Delhi University
Delhi, 110007
India

HOME PAGE: http://people@du.ac.in~vtripathi/

Arnav Kumar

University of Delhi - Delhi School of Economics - Department of Commerce ( email )

New Delhi, New Delhi 110007
India

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