Impact of inflation on stock market analysis - an empirical analysis

Abstract

Abstract It has been argued time and again whether stock can be used as a hedge against Inflation. There are many theorists who have developed various hypothesis around these two factors trying to build along a relationship between stock market returns and Inflation index. We believe that the puzzling relationship between Inflation and Stock market returns can be confirmed by using stochastic modeling and testing results. Our aim is to study the existing literature and conduct an empirical testing of the data collected for a select sample over a timeperiod of 15 years and we have discovered that contemporary negative relationship between stock market returns and inflation as predicted by Fama’s proxy hypothesis held in India,Singapore,UK and USA.Japan exhibits the ideal fisherian world with no relationship between stock market returns and Inflation.