Stock Market Investment and Inflation: Evidence from the United States and Canada

Authors

  • Janesh Sami The University of the South Pacific, Suva, Fiji Islands

Keywords:

Stock prices, Goods prices, Cointegration, Inflation, Stock Market Investment

Abstract

This paper examines the long-run relationship between goods prices and stock prices to understand whether stock market investment can help hedge against inflation in the United States (US) and Canada. This study employed an autoregressive distributed lag (ARDL) cointegration test developed by Pesaran, Shin, and Smith (2001), and finds evidence of a positive long-run economic relationship between stock prices and goods prices in both economies over the sample period 1960 to 2019. The long-run elasticity is above one for both economies implying that the developments in the goods market significantly affect the stock market. We undertake a suite of sensitivity checks and find robust evidence that the stock market investment can help hedge against inflation in the United States and Canada.

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Published

2021-06-29

Issue

Section

Forthcoming