Re-examining the Relationship between Inflation and Stock Return-Evidence from Quantile Regression Analysis

• Main Authors: Syuan-Rong Lin, 林宣蓉
• Other Authors: Cheng-Feng Lee
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/85217808954694084655

碩士 === 國立高雄應用科技大學 === 企業管理系 === 99 === Whether stock investment provides a hedge against inflation has been long debated. According to the Fisher hypothesis, stock returns should move one for one with inflation. However, many previous studies report that either a negative or insignificant relationship between inflation and stock returns. A possible explanation for the mixed results is that the literature focuses on the average behavior of the two variables. Hence, this study applies a new quantile regression approach to re-examine the relationship between the stock returns and inflation using data for OECD countries. The main purpose of this paper is to explore whether the relationship between the stock returns and inflation will change depending on various sizes and signs of shocks. Our empirical results suggest that the relationship between the two variables is negative and significant as the level of inflation is lower during the stock in bear markets or economic recessions. On the contrary, during the stock in bull markets or economic booms, our results show that the higher level of inflation revealing that the relationship between inflation and stock returns tends to show a strong positive correlation, thus conforming to the Fisher hypothesis.