ESTIMATING THE EFFECT OF INFLATION ON STOCK RETURNS USING REGIMEDEPENDENT IMPULSE RESPONSE ANALYSIS

Authors : Atilla ÇİFTER

Pages : 1-16

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Publication Date : 2017-12-31

Article Type : Research Paper

Abstract :Abstract This study investigates the effect of inflation on stock market in South Africa with regime-dependent impulse response analysis. Nonlinear regime-dependent interaction is tested with the Markov switching vector autoregression approach between July, 1995 and July, 2017. The results show that there is a negative impact of inflation in the short-term, and that a long-term relationship does not exist. This indicates that common stocks cannot be a hedge against inflation. The other findings relate to regime dependency and nonlinear correlation. I also found that movements of stock market are strongly regime-dependent. These results are robust in controlling additional macroeconomic variables.
Keywords : stock market, fisher hypothesis, regime dependent impulse response analysis