Iranian Journal of Economic Research

Stock Returns and Inflation; A Wavelet Analysis in Tehran Stock Exchange (TSE)

Authors

Saeed Moshiri 1
Kamran Pakizeh 2
Manoochehr Dabirian 3
Abolfazl Jafari 4

1 Ph. D in Economics, Department of Economics, STM College, Univeresity of Saskatchewan, Unviersity of Allmaeh Tabatabaie

2 Ph. D Candidate in Accounting, Department of Accounting and Management, Allameh Tabatabaei University

3 MS in Mathematics

4 MS in Financial Management

Abstract
Investors in stock markets are concerned about the inflation effect on their returns. However, the impact varies based on investment horizons.  Since investors have different attitudes and diverse investment horizons, studying the relationship between inflation and stock returns in different time scales would have great implications for their investment. In this paper, we examine the Fisher hypothesis, which denotes a positive relationship between nominal stock return and inflation rate, using a wavelet multi-scaling method that decomposes a given time series on a scale-by-scale basis. The wavelet approach based on time-scale decomposition provides a valuable means of testing the Fisher hypothesis and resolves the problem of conflicting results in the literature. Our results show a negative relationship between inflation and the TSE returns in short-run horizon and a positive relationship in long-run horizon. 

Keywords

Stock Returns
Inflation
Wavelet Analysis
Correlation
Fisher Hypothesis
TSE

  • Receive Date 30 April 2016
  • First Publish Date 30 April 2016

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