GENERALIZED FISHER HYPOTHESIS VALIDITY FOR CANADA, UK, AND SUISSE STOCK MARKETS: EVIDENCE FROM PANEL ARDL MODELS
Abstract
In this paper we propose a decision support tool for the investor in terms of asset allocation. The key question is to know whether equities are perfect hedge against inflation if either we invest in only one market or if we go to all the considered markets. We chose three democratic countries having common monetary policy based on the Inflation rate stabilization targeting (including Canada, UK, and Suisse) over the period 1999M01-2018M04. We see how the stock return evolution is related to inflation rate Pre, during, and Post 2008 Global financial crisis (GFC). Then, some dynamic version of the Generalized Fisher hypothesis (GFH) models are explored by some univariate and panel autoregressive dynamic linear (ARDL) frameworks. We conclude that during crisis period, being on either Suisse or Canadian stock market, investors can have important abnormal gains. Then including the UK in a portfolio allows investors to limit losses caused by inflation in the UK stock market alone.
References
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[28] Koustas, Z., and Lamarche, J. F. 2010. Evidence of Non-Linear Mean Reversion in the Real Interest Rate. Applied Economics, 42: 237–248.DOI: https://doi.org/10.1080/00036840701579242
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[34] Mundell, R. 1963. Inflation and real interest. J Polit Econ, 71: 280–283. DOI:10.1086/258771
[35] Nassar, S., and Bhatti, R. 2018. Are common stocks a hedge against inflation in emerging markets? J Econ Finan. DOI: https://doi.org/10.1007/s12197-018-9447-9
[36] Nelson, C. R. 1976. Inflation and rates of return on common stocks. Journal of Finance, 31: 471–483.
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[39] Rushdi, M., Kim, J., and Silvapulle, P. 2012. ARDL bounds tests and robust inference for the long run relationship between real stock returns and inflation in Australia. Econ Model, 29: 535–543. DOI: 10.1016/j.econmod.2011.12.017
[40] Salisu, A. A., Ndako, U. B., and Oloko, T. F. 2019. Assessing the inflation hedging of gold and palladium in OECD countries. Resources Policy, Elsevier, 62(C): 357-377.
[41] Sangyup, C., and Junhyeok, S. 2022. Bitcoin An Inflation Hedge but Not a Safe Haven. Finance Research Letters, 46(B): 102379. DOI: https://doi.org/10.1016/j.frl.2021.102379
[42] Schotman, P. C., and Schweitzer, M. 2000. Horizon Sensitivity of the Inflation Hedge of Stocks. Journal of Empirical Finance, 7: 301–305. DOI: http://directory.umm.ac.id/Data%20Elmu/jurnal/J-a/Journal%20of%20Empirical%20Finance%20(New)/Vol7.Issue3-4.2000/126.pdf
[43] Thi, H. V., Lahiani, A., and Heller, D. 2016. Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach. Economic Modelling, Elsevier, 54: 54-66. DOI:https://doi.org/10.1016/j.econmod.2015.12.013
[44] Tiwari, A., Cunado, J., Gupta, R., and Wohar, M. 2019. Are stock returns an inflation hedge for the UK? Evidence from a wavelet analysis using over three centuries of data. Studies in Nonlinear Dynamics & Econometrics. DOI: 10.1515/snde-2017-0049
[45] Tobin, J. 1965. Money and economic growth. Econometrica, 33: 671–684. DOI: 10.2307/1910352
[46] Tsong, C. C., and Lee, C. F. 2013. Quantile Cointegration Analysis of the Fisher Effect. Journal of Macroeconomics, 35: 186–198. DOI: https://doi.org/10.1016/j.jmacro.2012.11.001
[47] Valcarcel, V. J. 2012. The Dynamic Adjustments of Stock Prices to Inflation Disturbances. Journal of Economics and Business, 64: 117–144. DOI: https://doi.org/10.1016/j.jeconbus.2011.11.002
[2] Afees, A. S., Ndakoc, U. B., and Akannid, L. O. 2019. New evidence for the inflation hedging potential of US stock. Finance Research Letters, 1-7. DOI:https://doi.org/10.1016/j.frl.2019.101384
[3] Afees, A., Ibrahim, D., Umar, R., and Ndakoc, B. 2020. The inflation hedging properties of gold, stocks and real estate: A comparative analysis. Resources Policy, 66, 101605. DOI:10.1016/j.resourpol.2020.101605
[4] Akinsomi, O. 2020. How resilient are REITs to a pandemic? The COVID-19 effect. Journal of Property Investment & Finance, 39: 19–24. DOI: https://doi.org/10.1108/JPIF-06-2020-0065
[5] Al-Nassar, N. S., and Bhatti, R. H. 2019. Are common stocks a hedge against inflation in emerging markets? Journal of economics and finance, 43: 421-455. DOI:https://doi.org/10.1007/s12197-018-9447-9
[6] Ando, A., and Modigliani, F. 1963. The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests. American Economic Review, 53: 55-84.
[7] Antonakakis, N., Cunado, J., Gupta, R., and Tiwari, A. K. 2017. Has the Correlation of Inflation and Stock Prices Changed in the United States over the Last Two Centuries? Research in International Business and Finance, 42: 1–8. DOI: https://doi.org/10.1016/j.ribaf.2017.04.005
[8] Arnold, S., and Auer, B. 2015. What do scientists know about inflation hedging? North American Journal of Economics and Finance, 34: 187-214. DOI: https://doi.org/10.1016/j.najef.2015.08.005
[9] Baker, H., and Jabbouri, I. 2016. How moroccan managers view dividend policy. Manage. Finance, 42(3): 270–288. DOI: https://doi.org/10.1108/MF-07-2015-0211
[10] Baker, H., and Jabbouri, I. 2017. How moroccan institutional investors view dividend policy. Manager. Finance, 43(12): 1332–1347. DOI: https://doi.org/10.1108/MF-06-2017-0215
[11] Barnes, M., Boyd, J. H., and Smith, B. 1999. Inflation and asset returns. European Economic Review, 43: 737-754. DOI: https://doi.org/10.1016/S0014-2921(98)00090-7
[12] Basse, T., and Reddemann, S. 2011. Inflation and the dividend policy of US firms. Manage. Finance, 37(1): 34–46. DOI: https://doi.org/10.1108/03074351111092139
[13] Belke, A., and Dreger, C. 2013. Current Account Imbalances in the Euro Area: Does Catching up Explain the Development?. Review of International Economics, 21(1): 6-17.
[14] Bodie, Z. 1976. Common stocks as a hedge against inflation. J Financ, 31: 459–470.
[15] Chatrath, A. R. 1997. Stock prices, inflation and output : evidence from India. Applied Financial Economics, 7: 439-445. DOI: https://doi.org/10.1080/096031097333556
[16] Darby, M. 1975. The financial and tax effects of monetary policy on interest rates. Econ Inq, 13: 266–276. DOI: https://doi.org/10.1111/j.1465-7295.1975.tb00993.x
[17] Erb, C., Harvey, C., and Viskanta, T. 1995. Inflation and world equity selection. Financial Analysts Journal, 51(6). http://www.jstor.org/stable/4479881
[18] Fama, E. F. 1981. Stock returns, real activity, inflation, and money. The American Economic Review. https://www.jstor.org/stable/i331320
[19] Fama, E. F., and Schwert, G. W. 1977. Asset Returns and Inflation. J. Fin. Econ, 5: 115-146.
[20] Fisher, I. 1930. The Theory of Interest. The Macmillan Company.
[21] Geske, R., and Roll, R. 1983. The Fiscal and Monetary Linkage Between Stock Returns and Inflation. Journal of Finance, 38: 1–33. DOI: https://doi.org/10.2307/2327635
[22] Ghazali, N., and Ramlee, S. 2003. A long memory test of the long-run Fisher effect in the G7 countries. Applied Financial Economics, 13: 763-769. DOI:https://doi.org/10.1080/09603100210149149
[23] Gultekin, N. 1983. Stock market returns and inflation: evidence from other countries. Journal of Finance, 38: 49-65. DOI: https://doi.org/10.1111/j.1540-6261.1983.tb03625.x
[24] Halit, A. 2016. Do stock returns provide a good hedge against inflation? An empirical assessment using Turkish data during periods of structural change. International Review of Economics and Finance, 45: 230–246. DOI: https://doi.org/10.1016/j.iref.2016.06.002
[25] Hardin, W. G., Jiang, X., and Wu, Z. 2012. REIT Stock Prices with Inflation Hedgign and Illusion. Journal of Real Estate Finance and Economics. DOI: https://doi.org/10.1007/s11146-010-9259-y
[26] Hausman, J. A. 1978. Specification tests in econometrics. Econometrica, 46: 1251–1271.
[27] Hoesli, M., MacGregor, B. D., Matysiak, G., and Nanthakumaran, N. 1997. The Short-term Inflationhedging Characteristics of U.K. Real Estate. Journal of Real Estate Finance and Economics, 15(1): 27-57. DOI: https://doi.org/10.1023/A:1007797221329
[28] Koustas, Z., and Lamarche, J. F. 2010. Evidence of Non-Linear Mean Reversion in the Real Interest Rate. Applied Economics, 42: 237–248.DOI: https://doi.org/10.1080/00036840701579242
[29] Kuang, L. C. 2017. Does REIT index hedge inflation risk? New evidence from the tail quantile dependences of the Markov-switching GRG copula. North American Journal of Economics and Finance, 39: 56–67. DOI: https://doi.org/10.1016/j.najef.2016.11.001
[30] Lee, M.-T., and Lee, M.-L. 2012. Long-run Inflation-hedging Properties of US equity REITs: Before and After the Structural Break in the 1990s. African Journal of Business Management, 6(6): 2162- 2168. DOI: 10.5897/AJBM11.1181
[31] Lintner, J. 1973. Inflation and common stock prices in a cyclical context. Annual Report. National Bureau of Economic Research. New York, 23–36.
[32] Lothian, J. R., and McCarthy, C. H. 2001. Equity Returns and Inflation: The Puzzlingly Long Lags. International Finance 0107003, EconWPA.
[33] Modigliani, F., and Cohn, R. A. 1979. Inflation, Rational Valuation and the Market. Financial Analyst Journal, 35: 22–44. Available at: https://www.jstor.org/stable/4478223
[34] Mundell, R. 1963. Inflation and real interest. J Polit Econ, 71: 280–283. DOI:10.1086/258771
[35] Nassar, S., and Bhatti, R. 2018. Are common stocks a hedge against inflation in emerging markets? J Econ Finan. DOI: https://doi.org/10.1007/s12197-018-9447-9
[36] Nelson, C. R. 1976. Inflation and rates of return on common stocks. Journal of Finance, 31: 471–483.
[37] Pesaran, M. H., Shin, Y., and Smith, R. J. 1999. Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94: 621–634. Retrieved from http://www.jstor.org/stable/2670182
[38] Richard, B., and Ran, 2021. The golden hedge from global financial crisis to global pandemic. Economic Modelling, 95: 170-180. DOI: https://doi.org/10.1016/j.econmod.2020.12.009
[39] Rushdi, M., Kim, J., and Silvapulle, P. 2012. ARDL bounds tests and robust inference for the long run relationship between real stock returns and inflation in Australia. Econ Model, 29: 535–543. DOI: 10.1016/j.econmod.2011.12.017
[40] Salisu, A. A., Ndako, U. B., and Oloko, T. F. 2019. Assessing the inflation hedging of gold and palladium in OECD countries. Resources Policy, Elsevier, 62(C): 357-377.
[41] Sangyup, C., and Junhyeok, S. 2022. Bitcoin An Inflation Hedge but Not a Safe Haven. Finance Research Letters, 46(B): 102379. DOI: https://doi.org/10.1016/j.frl.2021.102379
[42] Schotman, P. C., and Schweitzer, M. 2000. Horizon Sensitivity of the Inflation Hedge of Stocks. Journal of Empirical Finance, 7: 301–305. DOI: http://directory.umm.ac.id/Data%20Elmu/jurnal/J-a/Journal%20of%20Empirical%20Finance%20(New)/Vol7.Issue3-4.2000/126.pdf
[43] Thi, H. V., Lahiani, A., and Heller, D. 2016. Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach. Economic Modelling, Elsevier, 54: 54-66. DOI:https://doi.org/10.1016/j.econmod.2015.12.013
[44] Tiwari, A., Cunado, J., Gupta, R., and Wohar, M. 2019. Are stock returns an inflation hedge for the UK? Evidence from a wavelet analysis using over three centuries of data. Studies in Nonlinear Dynamics & Econometrics. DOI: 10.1515/snde-2017-0049
[45] Tobin, J. 1965. Money and economic growth. Econometrica, 33: 671–684. DOI: 10.2307/1910352
[46] Tsong, C. C., and Lee, C. F. 2013. Quantile Cointegration Analysis of the Fisher Effect. Journal of Macroeconomics, 35: 186–198. DOI: https://doi.org/10.1016/j.jmacro.2012.11.001
[47] Valcarcel, V. J. 2012. The Dynamic Adjustments of Stock Prices to Inflation Disturbances. Journal of Economics and Business, 64: 117–144. DOI: https://doi.org/10.1016/j.jeconbus.2011.11.002
Published
2022-12-31
How to Cite
NEIFAR, Malika; HACHICHA, Fatma.
GENERALIZED FISHER HYPOTHESIS VALIDITY FOR CANADA, UK, AND SUISSE STOCK MARKETS: EVIDENCE FROM PANEL ARDL MODELS.
Theoretical and Practical Research in Economic Fields, [S.l.], v. 13, n. 2, p. 188 - 200, dec. 2022.
ISSN 2068-7710.
Available at: <https://journals.aserspublishing.eu/tpref/article/view/7472>. Date accessed: 24 apr. 2024.
doi: https://doi.org/10.14505/tpref.v13.2(26).08.
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