STOCK RETURN AND INFLATION IN KAZAKHSTAN, RUSSIA AND UKRAINE

Year 2013, Volume: 5 Issue: 1, 258 - 270, 01.06.2013

Razzaque H Bhatti Olga Pak

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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