The generalized Fisher hypothesis in the Asian markets

This paper investigates the generalized Fisher hypothesis for nine equity markets in the Asian countries. It states that the real rates of return on common stocks and the expected inflation rate are independent and that nominal stock returns vary in a one-to-one correspondence with the expected infl...

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Bibliographic Details
Published in:Journal of economic studies (Bradford) 2004, Vol.31 (2), p.144-157
Main Author: Khazali, Osamah M. Al
Format: Article
Language:English
Subjects:
Asia
Asian studies
Capital markets
Economic models
Economic shock
Economic theory
Equity
Equity capital
Equity theory
Hypotheses
Inflation
Investment
Stock returns
Studies
Variance
Vectors
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Summary:This paper investigates the generalized Fisher hypothesis for nine equity markets in the Asian countries. It states that the real rates of return on common stocks and the expected inflation rate are independent and that nominal stock returns vary in a one-to-one correspondence with the expected inflation rate. The regression results indicate that stock returns in general are negatively correlated to both expected and unexpected inflation, and that common stocks provide a poor hedge against inflation. However, the results of the VAR model indicate the lack of a unidirectional causality between stock returns and inflation. It also fails to find a consistent negative response neither of inflation to shocks in stock returns nor of stock returns to shocks in inflation in all countries. It appears that the generalized Fisher hypothesis in the Asian markets is as puzzling as in the developed markets.
ISSN:0144-3585
1758-7387
DOI:10.1108/01443580410527123