By studying the relationship between stock real returns and inflation, we could find the correlation between stock market volatility and macroeconomic conditions. By econometric testing, we find that inflation volatility could influence the changes in actual stock returns. This means that changes in price not only affects the substitutions of consumption goods, but also those of investment goods. Therefore, by implementing the active monetary policy, we could loosen the pressure of deflation, expand the stock market scale, and form the stable expectation of increasing stock return.
In order to study the relationship of stock returns and inflation in China, VAR model is used in this paper. Use China’s stock market data and inflation data from 1991 to 2008 to establish VAR model, then research on the relationship between the stock returns and the inflation rate by econometric methods. Empirical results show that there is a faint correlation between the stock returns and the inflation, which is a negative correlation in the long-term.
In order to study the relationship of stock returns and inflation in China, VAR model is used in this paper. Use China’s stock market data and inflation data from 1991 to 2008 to establish VAR model, then research on the relationship between the stock returns and the inflation rate by econometric methods. Empirical results show that there is a faint correlation between the stock returns and the inflation, which is a negative correlation in the long-term.