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An analysis of inflation and stock returns for the UK

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  • Li, Lifang
  • Narayan, Paresh Kumar
  • Zheng, Xinwei

Abstract

Whether common stocks provide a hedge against inflation has been long debated. This paper focuses on this question by investigating the relationship between inflation and stock returns in the short term and medium term and under different inflationary regimes using the UK data. Empirical evidence suggests that the UK stock market fails to hedge against inflation in the short term. However, in the medium term there is mixed results. Results from different inflationary regimes show that the relationship between inflation and returns varies in different regimes.

Suggested Citation

  • Li, Lifang & Narayan, Paresh Kumar & Zheng, Xinwei, 2010. "An analysis of inflation and stock returns for the UK," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(5), pages 519-532, December.
    • Handle: RePEc:eee:intfin:v:20:y:2010:i:5:p:519-532
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    Cited by:

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    3. Aviral Kumar Tiwari & Adeolu O. Adewuyi & Olabanji B. Awodumi & David Roubaud, 2022. "Relationship between stock returns and inflation: New evidence from the US using wavelet and causality methods," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4515-4540, October.
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    5. Salisu, Afees A. & Raheem, Ibrahim D. & Ndako, Umar B., 2020. "The inflation hedging properties of gold, stocks and real estate: A comparative analysis," Resources Policy, Elsevier, vol. 66(C).
    6. Konrad Farrugia & Janice Duca & Peter J. Baldacchino & Simon Grima, 2021. "The Relationship between Inflation and Stock Returns in a Small Island State: An Analysis," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 11(2), pages 51-78.
    7. Naveed Raza & Syed Jawad Hussain Shahzad & Muhammad Shahbaz & Aviral kumar Tiwari, 2017. "Modeling the nexus between oil shocks, inflation and commodity prices: Do Asymmetries really matter?," Economics Bulletin, AccessEcon, vol. 37(4), pages 2374-2383.
    8. Koivisto, Tero, 2024. "Asset price shocks and inflation in the Finnish economy," BoF Economics Review 6/2024, Bank of Finland.
    9. Chiang, Thomas C. & Chen, Pei-Ying, 2023. "Inflation risk and stock returns: Evidence from US aggregate and sectoral markets," The North American Journal of Economics and Finance, Elsevier, vol. 68(C).
    10. Nassar S. Al-Nassar & Razzaque H. Bhatti, 2019. "Are common stocks a hedge against inflation in emerging markets?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(3), pages 421-455, July.
    11. Somayeh Madadpour & Mohsen Asgari, 2019. "The puzzling relationship between stocks return and inflation: a review article," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(2), pages 115-145, June.
    12. Dalina Amonhaemanon & Jan Annaert & Marc J.K. De Ceuster & Hau Le Long, 2014. "The Fisher Hypothesis and Investment Assets: The Vietnamese and Thai Case," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(4), pages 180-195, October.
    13. Philips, Abiodun S. & Akinseye, Ademola B. & Oduyemi, Gabriel O., 2022. "Do exchange rate and inflation rate matter in the cyclicality of oil price and stock returns?," Resources Policy, Elsevier, vol. 78(C).
    14. Salisu, Afees A. & Ndako, Umar B. & Akanni, Lateef O., 2020. "New evidence for the inflation hedging potential of US stock returns," Finance Research Letters, Elsevier, vol. 37(C).
    15. Azmi, Wajahat & Mohamad, Shamsher & Shah, Mohamed Eskandar, 2020. "Ethical investments and financial performance: An international evidence," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    16. de Mendonça, Helder Ferreira & Díaz, Raime Rolando Rodríguez, 2023. "Can ignorance about the interest rate and macroeconomic surprises affect the stock market return? Evidence from a large emerging economy," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    17. Baresa, Suzana & Bogdan , Sinisa & Ivanovic, Zoran, 2013. "Strategy Of Stock Valuation By Fundamental Analysis," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 4(1), pages 45-51.

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