Are ‘stock returns’ a hedge against inflation in Japan? Determination using ADL bounds testing

Abstract

In this study, the ADL bounds test, developed by Pesaran et al. (2001), is used to test whether the Japanese stock market can provide a hedge against inflation based on monthly data over the period 2001M1 to 2011M7. Granger causality between stock market returns and inflation is also examined. The results of this study provide a reference for participants in developed stock markets and provide evidence that stock returns hedge against inflation.

Keywords:

• stock returns
• hedging
• causality
• ADL
• inflation

JEL Classification:

• G12
• G18