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Expected inflation and U.S. stock sector indices: A dynamic time-scale tale from inflationary and deflationary crisis periods

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  • Bouri, Elie
  • Nekhili, Ramzi
  • Kinateder, Harald
  • Choudhury, Tonmoy

Abstract

This paper analyses the co-movement between changes in expected inflation and U.S. stock sector returns utilizing a wavelet local multiple correlation approach, which records temporal evolution and potential correlation dynamics at various frequencies. Using daily data from January 2, 2003 to December 30, 2022, we find insignificant correlations in the short term but heterogeneous correlations in longer time periods. After the deflationary GFC period, quantitative easing has turned the long-term correlation negative in some sectors, and since COVID-19, the correlation has been positive. However, energy and materials are pro-inflation sectors in the medium and long term.

Suggested Citation

  • Bouri, Elie & Nekhili, Ramzi & Kinateder, Harald & Choudhury, Tonmoy, 2023. "Expected inflation and U.S. stock sector indices: A dynamic time-scale tale from inflationary and deflationary crisis periods," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002180
    DOI: 10.1016/j.frl.2023.103845
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    Cited by:

    1. Cao, Fangzhi & Su, Chi-Wei & Sun, Dian & Qin, Meng & Umar, Muhammad, 2024. "U.S. monetary policy: The pushing hands of crude oil price?," Energy Economics, Elsevier, vol. 134(C).
    2. Akhtaruzzaman, Md & Boubaker, Sabri & Goodell, John W., 2023. "Did the collapse of Silicon Valley Bank catalyze financial contagion?," Finance Research Letters, Elsevier, vol. 56(C).
    3. Bhattacherjee, Purba & Mishra, Sibanjan & Kang, Sang Hoon, 2024. "Extreme time-frequency connectedness across U.S. sector stock and commodity futures markets," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 1176-1197.
    4. Jiang, Yong & Al-Nassar, Nassar S. & Ren, Yi-Shuai & Ma, Chao-Qun & Yang, Xiao-Guang, 2024. "Tail connectedness between category-specific policy uncertainty, sovereign debt risk, and stock volatility during a high inflation period," Research in International Business and Finance, Elsevier, vol. 70(PB).
    5. Bouri, Elie & Nekhili, Ramzi & Todorova, Neda, 2023. "Dynamic co-movement in major commodity markets during crisis periods: A wavelet local multiple correlation analysis," Finance Research Letters, Elsevier, vol. 55(PB).
    6. Luo, Changqing & Qu, Yi & Su, Yaya & Dong, Liang, 2024. "Risk spillover from international crude oil markets to China’s financial markets: Evidence from extreme events and U.S. monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).

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    More about this item

    Keywords

    U.S. inflation; U.S. stock sector returns; Wavelet local multiple correlation (WLMC) approach; Global financial crisis (GFC); COVID-19 pandemic; Russia-Ukraine war;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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