STOCK RETURN AND INFLATION IN KAZAKHSTAN, RUSSIA AND UKRAINE

Abstract

This paper examines the relationship between stock returns and inflation rates in the context of the Fisher hypothesis in the three CIS countries – Kazakhstan, Russia and Ukraine – using monthly data on stock and goods prices over the period 2001M1-2012M10. Regression results indicate that although the estimated coefficients of current and expected inflation are correctly signed in all cases, the hypothesis holds precisely only in the case of Kazakhstan. Moreover, in the case of Kazakhstan the coefficients of both current and expected inflation are statistically significant and higher than unity. The results from cointegration tests do not confirm the existence of a long run relationship between stock and goods prices. However, a significant error correction representation exists for Russia showing that it takes less than 2 years to restore the equilibrium between stock and goods prices. An important finding that emerges from this study is that like stock markets in other countries the CIS stock markets do not tend to provide a good hedge against inflation.

Keywords

• Stock return, inflation rate, Fisher hypothesis

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