Short Run Causal Relationship between Inflation and Stock Returns - An Empirical Study of BRICS Markets

Asian Journal of Management Applications and Research, Vol.05, No.01

13 Pages Posted: 23 Aug 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: August 21, 2015

Abstract

Equity investment is assumed to be a good hedge against inflation since long time. This paper examines short run causal relationship between inflation and stock return in emerging BRICS markets. The study covers a comprehensive period of 13 years from the year 2000 to 2013 using quarterly data. The regression results reveal a significant positive relationship between changes in inflation and stock returns only in case of Brazil. But, Granger causality results reveal unidirectional causality from stock return to changes in inflation in Russia, India and South Africa and bidirectional causality in China. Hence, there seem to be a cause and effect relationship between stock returns and inflation in emerging markets. The results are of pertinent importance in today's context where emerging markets are facing the problems of rising inflation and volatile stock returns. The policy regulators need to understand these dynamics between inflation and stock returns to ensure better regulation of the markets. For investors particularly large and institutional investors the study findings support trading based on inflation forecasts efficiency of Indian stock market.

Keywords: BRICS, Stock Returns, Inflation, Unit root test, Regression, Granger Causality

JEL Classification: G12, G14

Suggested Citation

Tripathi, Vanita and Kumar, Arnav, Short Run Causal Relationship between Inflation and Stock Returns - An Empirical Study of BRICS Markets (August 21, 2015). Asian Journal of Management Applications and Research, Vol.05, No.01 . Available at SSRN: https://ssrn.com/abstract=2649108

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

Register to save articles to
your library

Register

Paper statistics

Downloads
108
Abstract Views
551
rank
251,570
PlumX Metrics