Abstract
Inflation is one of the main causes of depreciating real value of money
which in long run become the cause of downturn of the economic state
of any country. This study investigates the typical mechanism of
inflation which is the major concern of every economy all over the
globe and which also influences on the investor's investment and return
in stock markets. Share price index, industrial production, interest
rates monthly basis data for the July 1997 to December 2017 were
collected to check Co-Integration evidence by using Vector Error
Correction Model (VECM) and the Johansen co-integration model. The
results found Co-Integration among selected variables to investigate
these three countries. Similarly, VECM results suggested that inflation,
IPI converge, Interest rate, Stock returns are significant for long-term
equilibrium but its rate of adjustment toward equilibrium is slow. The
results also indicate that all variables including inflation are not
showing any significant effect on stock market returns. Hence, this
study concluded that in the long run China and Pakistan’s stock
markets provide a safety umbrella to investors against inflation but for
the shortterm, it is not secure. On the other hand, for India, both short
and long-term association is not found. This study outcome helps
policymakers to devise suitable policies for raising investments in
financial markets which in the long run results in stable economic
growth.
Raja Rehan, Imran Umer Chhapra, Abdul Qadir Patoli. (2017) Can Stock Market Returns be used as a Hedge against Inflation? - Evidence from Three Asian Countries , Journal of Managerial Sciences, Volume 11, Issue 4.
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