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Empirical Tests of the Proxy Hypothesis

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  • McCarthy, Joseph
  • Najand, Mohammad
  • Seifert, Bruce

Abstract

The proxy hypothesis states that the negative relationship between inflation and stock returns is spurious and really only proxies for the positive relationship between stock returns and real variables. Previous tests of the proxy hypothesis have used actual values instead of forcasted values for the real activity variable. Using only forcasted variables, the authors' results do not support the proxy hypothesis. Copyright 1990 by MIT Press.

Suggested Citation

  • McCarthy, Joseph & Najand, Mohammad & Seifert, Bruce, 1990. "Empirical Tests of the Proxy Hypothesis," The Financial Review, Eastern Finance Association, vol. 25(2), pages 251-263, May.
    • Handle: RePEc:bla:finrev:v:25:y:1990:i:2:p:251-63
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    Cited by:

    1. Najand, Mohammad & Noronha, Gregory, 1998. "Causal relations among stock returns, inflation, real activity, and interest rates: Evidence from Japan," Global Finance Journal, Elsevier, vol. 9(1), pages 71-80.
    2. Laopodis, Nikiforos T., 2009. "Fiscal policy and stock market efficiency: Evidence for the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 633-650, May.
    3. Mahdi Sadeghi, 1992. "Stock Market Response to Unexpected Macroeconomic News: The Australian Evidence," IMF Working Papers 1992/061, International Monetary Fund.
    4. Charles O. Manasseh & Ambrose N. Omeje, 2016. "Application of Generalized Autoregressive Conditional Heteroschedasticity Model on Inflation and Share Price Movement in Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1491-1501.
    5. Chiang, Thomas C., 2023. "Real stock market returns and inflation: Evidence from uncertainty hypotheses," Finance Research Letters, Elsevier, vol. 53(C).
    6. Jeevita Matadeen, 2019. "Stock Market Development: An Assessment of its Macroeconomic and Institutional Determinants in Mauritius," International Journal of Economics and Financial Issues, Econjournals, vol. 9(4), pages 197-202.
    7. Osamah M. Al-Khazali, 2003. "Stock Prices, Inflation, and Output: Evidence from the Emerging Markets," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 2(3), pages 287-314, September.
    8. repec:asi:ajoerj:2013:p:654-662 is not listed on IDEAS
    9. Y. Angela Liu & L. Paul Hsueh & Ronnie J. Clayton, 1993. "A Re-Examination Of The Proxy Hypothesis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(3), pages 261-268, September.

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