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Inflation and Stock Market Returns:Some Australian Evidence *
Author(s) -
SAUNDERS ANTHONY,
TRESS RICHARD B.
Publication year - 1981
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1981.tb01700.x
Subject(s) - economics , stock (firearms) , equity (law) , monetary economics , stock market , financial economics , valuation (finance) , granger causality , inflation (cosmology) , empirical evidence , econometrics , finance , mechanical engineering , paleontology , physics , horse , theoretical physics , political science , law , biology , engineering , philosophy , epistemology
This paper analyzes the relationship between Australian stock returns and inflation over the period 1965‐79. The effects of inflation in a ‘rational investor’ valuation framework are discussed. Empirical tests suggest that nominal stock returns and inflation are related in a significantly negative fashion, implying that stocks have been extremely poor inflationary hedges for the investor over the period. In addition, Granger‐Sims tests of causality indicate a mainly unidirectional relationship between inflation and stock returns, with price level charges leading the equity index in time.