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Article
Publication date: 14 January 2021

Jinan Liu and Apostolos Serletis

To investigate the complex relationship between inflation, inflation uncertainty and equity returns.

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Abstract

Purpose

To investigate the complex relationship between inflation, inflation uncertainty and equity returns.

Design/methodology/approach

This paper uses a bivariate VARMA, GARCH-in-mean, asymmetric BEKK model to investigate the relationship between inflation, inflation uncertainty and equity returns.

Findings

Using monthly inflation and equity returns data for the G7 and EM7 economies, we find that the effects of inflation and inflation uncertainty on equity returns vary across countries.

Research limitations/implications

The mixed evidence we find potentially reflects the changing dynamics, policy regimes, economic shocks and country-specific factors (such as differences in the financing patterns of enterprises and the legal and financial environments) across the G7 and EM7 countries.

Practical implications

We contribute to the empirical literature in the following ways. First, we rely on a wide sample of countries, including both developed and emerging economies. Second, we extend previous research by estimating a GARCH-in-mean model of monthly equity returns in which both realized returns and their conditional volatility are allowed to vary with inflation. Previous articles that studied the relationship between inflation and stock market returns generally sought time-invariant effects of inflation on stock returns.

Social implications

The paper helps to reconcile the divergent results of previous empirical studies and distinguish between alternative explanations of the relationship between inflation and equity returns.

Originality/value

Our study provides an improved comprehension of the ambiguous relationship between inflation, inflation uncertainty and equity returns under various central bank mandates and different levels of central bank independence. The mixed empirical evidence across countries we present provides insights for the macroeconomic models that consider the relationship between uncertainty and macroeconomic performance as a fundamental building block. Therefore, our empirical study calls for further work on the relationship between inflation, inflation uncertainty and equity returns.

Details

Journal of Economic Studies, vol. 49 no. 1
Type: Research Article
ISSN: 0144-3585

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Abstract

Details

Functional Structure Inference
Type: Book
ISBN: 978-0-44453-061-5

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Book part
Publication date: 23 July 2007

Apostolos Serletis and Karl Pinno

Abstract

Details

Functional Structure Inference
Type: Book
ISBN: 978-0-44453-061-5

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Book part
Publication date: 23 July 2007

Guohua Feng and Apostolos Serletis

Abstract

Details

Functional Structure Inference
Type: Book
ISBN: 978-0-44453-061-5

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Book part
Publication date: 23 July 2007

William A. Barnett and Apostolos Serletis

Abstract

Details

Functional Structure Inference
Type: Book
ISBN: 978-0-44453-061-5

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Book part
Publication date: 30 June 2000

William A. Barnett, Douglas Fisher and Apostolos Serletis

Abstract

Details

The Theory of Monetary Aggregation
Type: Book
ISBN: 978-0-44450-119-6

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Book part
Publication date: 30 June 2000

William A. Barnett and Apostolos Serletis

Abstract

Details

The Theory of Monetary Aggregation
Type: Book
ISBN: 978-0-44450-119-6

Access Restricted. View access options
Book part
Publication date: 30 June 2000

William A. Barnett and Apostolos Serletis

Abstract

Details

The Theory of Monetary Aggregation
Type: Book
ISBN: 978-0-44450-119-6

Access Restricted. View access options
Book part
Publication date: 30 June 2000

William A. Barnett and Apostolos Serletis

Abstract

Details

The Theory of Monetary Aggregation
Type: Book
ISBN: 978-0-44450-119-6

Access Restricted. View access options
Book part
Publication date: 30 June 2000

William A. Barnett and Apostolos Serletis

Abstract

Details

The Theory of Monetary Aggregation
Type: Book
ISBN: 978-0-44450-119-6

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