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Stock prices, inflation and inflation uncertainty in the U.S.: testing the long-run relationship considering Dow Jones sector indexes

Author

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  • Claudiu Tiberiu Albulescu

    (UPT - Universității Politehnica Timișoara [România] = Polytechnic University of Timişoara [Romania] = Université polytechnique de Timișoara [Roumanie])

  • Christian Aubin

    (Axe 2 (2011-2016) : « Marchés, Cultures de consommation, Autonomie et Migrations » (MSHS Poitiers) - MSHS de Poitiers - Maison des sciences de l'homme et de la société de Poitiers - UP - Université de Poitiers = University of Poitiers - CNRS - Centre National de la Recherche Scientifique, CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers, CPER INSECT - CPER "INnovation Sociale, Economique et Culturelle dans des Territoires en mutation" (MSHS Poitiers) - MSHS de Poitiers - Maison des sciences de l'homme et de la société de Poitiers [UAR 3565] - UP - Université de Poitiers = University of Poitiers - CNRS - Centre National de la Recherche Scientifique)

  • Daniel Goyeau

    (CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers, Axe 2 (2011-2016) : « Marchés, Cultures de consommation, Autonomie et Migrations » (MSHS Poitiers) - MSHS de Poitiers - Maison des sciences de l'homme et de la société de Poitiers - UP - Université de Poitiers = University of Poitiers - CNRS - Centre National de la Recherche Scientifique)

Abstract

We test for the long-run relationship between stock prices, inflation and its uncertainty for different U.S. sector stock indexes, over the recent time-span, namely 2006M1-2015M5. For this purpose we use a cointegration analysis with one structural break to capture the crisis effect, and two alternative measures of inflation uncertainty relying on a time-varying unobserved component model. In line with recent empirical studies we discover that in the long-run, the inflation and its uncertainty negatively impact the stock prices, opposed to the well-known Fisher effect. However, in the short-run the results are mixed, providing evidence for complex interdependences between stock prices, inflation and its uncertainty. Our results are robust regarding the use of a bounded or unbounded inflation trend for measuring the uncertainty, and a slight difference is noticed between different sector indexes.

Suggested Citation

  • Claudiu Tiberiu Albulescu & Christian Aubin & Daniel Goyeau, 2016. "Stock prices, inflation and inflation uncertainty in the U.S.: testing the long-run relationship considering Dow Jones sector indexes," Post-Print halshs-01394897, HAL.
    • Handle: RePEc:hal:journl:halshs-01394897
    DOI: 10.1080/00036846.2016.1226491
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01394897
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    More about this item

    Keywords

    inflation uncertainty; cointegration with structural breaks; stock prices;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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