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Abstract

Following the global financial crisis of 2007-2008, the empirical investigation into financial variables affecting the performance of stock markets has gained prominence in the field of research. This study becomes the first to investigate the asymmetric cointegration effects of inflation on the stock market returns for the Johannesburg Stock Exchange JSE using monthly data collected from 2003:01 to 2014:12. The empirical model used in the study is the recently developed momentum threshold autoregressive MTAR model. Indeed, our results advocate for a negative, nonlinear cointegration relationship between inflation and stock returns in South Africa with causality running uni-directional from inflation to stock returns. Our empirical results suggest two things. Firstly, investors cannot hedge against rising inflation by investing in equity stocks listed on the JSE. Secondly, monetary policy, through the use of inflation targets, can provide a stable financial environment for the growth of equity markets in South Africa.



Item Type: MPRA Paper -

Original Title: Long run equilibrium adjustment between inflation and stock market returns in South Africa: A nonlinear perspective-

Language: English-

Keywords: Inflation; Stock market returns; Momentum threshold autoregressive MTAR model; Threshold error correction TEC model; Johannesburg Stock Exchange JSE; South Africa; Sub-Saharan Africa SSA; Developing economies-

Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion ProcessesC - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and EstimationC - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and SelectionE - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; DeflationG - Financial Economics > G1 - General Financial Markets > G10 - General-





Autor: Phiri, Andrew

Fuente: https://mpra.ub.uni-muenchen.de/70260/



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