Can Common Stocks Provide A Hedge Against Inflation? Evidence from African Countries

Citation

Alagidede P & Panagiotidis T (2010) Can Common Stocks Provide A Hedge Against Inflation? Evidence from African Countries. Stirling Economics Discussion Paper, 2010-07.

Abstract
The extent to which the stock market provides a hedge to investors against inflation is examined for African stock markets. By employing parametric and nonparametric cointegration procedures, we show that the point estimates of the elasticities of stock prices with respect to consumer prices range from 0.015 for Tunisia to 2.264 for South Africa, evidence of a positive long-run relationship. Further, the time path of the response of stock prices to innovations in consumer prices exhibits a transitory negative response for Egypt and South Africa, which becomes positive over longer horizons: important indication that the stock market tends to provide a hedge against rising consumer prices in African markets.

Keywords
Stock Prices; Cointegration; Fisher Effect; African Stock Markets; Inflation; Stock exchanges Africa; Africa Economic conditions; Inflation (Finance); Stocks Prices

JEL codes

• G10: General Financial Markets: General (includes Measurement and Data)
• C32: Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
• G15: International Financial Markets

• SEDP-2010-07-Alagidede-Panagiotidis.pdf