Has the correlation of inflation and stock prices changed in the United States over the last two centuries?

Nikolaos Antonakakis, Rangan Gupta, Aviral K. Tiwari

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    Abstract

    The relationship between stock prices and the inflation can be either negative or positive, depending on the strengths of various theoretical channels at work. In this study, we examine the dynamic conditional correlations of stock prices and inflation in the United States over the period of 1791–2015 under a time-varying framework. The results of our empirical analysis reveal that correlations between the inflation and stock prices in the United States evolve heterogeneously overtime. In particular, the correlations are significantly positive in the 1840s, 1860s, 1930s and 2011, and significantly negative otherwise. The policy implications of these findings are then discussed.
    Original languageEnglish
    Pages (from-to)1-8
    Number of pages8
    JournalResearch in International Business and Finance
    Volume42
    Early online date17 Apr 2017
    DOIs
    Publication statusPublished - 1 Dec 2017

    Keywords

    • conditional correlation
    • GARCH
    • inflation and stock price comovement
    • US economy

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