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Stock Returns, Inflation and the "Reverse Causality" Hypothesis: Evidence from Nigeria

International Journal of Research in Business and Social Science

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Title Stock Returns, Inflation and the "Reverse Causality" Hypothesis: Evidence from Nigeria
 
Creator Igbinedion, Sunday Osahon; University of Benin, Edo State, Nigeria
Anyiwe, Mercy Ada; Department of Economics and Statistics, University of Benin, Edo State.
 
Subject Finance; Economics
Reverse causality, Stock Returns, VEC Methodology, Nigeria.
 
Description Since the pioneering work of Fisher (1930), which hypothesized that real stock price is independent of inflation, the need for a better explanation has spurred a number of alternative hypotheses, viz, the tax effect hypothesis (Feldstein, 1980), proxy hypothesis (Fama, 1981), and the reverse causality hypothesis (Geske and Roll, 1983). Empirical studies on these three hypothetical explanations using data from both developed and emerging economies have however produced mixed results, an indication that the debate about the exact relation between stocks and inflation is far from being conclusive. This paper contributes to this burgeoning literature in, at least, three important dimensions. Employing Vector Error Correction Methodology (VCEM), causality was found between inflation and government stocks, with causality running from government stocks to inflation, thus providing evidence in support of the reverse causality hypothesis. The result of the impulse response function was characterized by cyclical fluctuations. This suggests, in part, the need for a tight monetary policy which would help to reduce inflation and stock prices, as such measure would leave the individuals with less money to buy stocks or goods. Such efforts should be complemented and augmenting domestic production and encouraging investment through inexpensive bank finance.
 
Publisher SSBFNET
 
Contributor —
 
Date 2015-02-26
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.ssbfnet.com/ojs/index.php/ijrbs/article/view/373
 
Source International Journal of Research in Business and Social Science ( ISSN: 2147- 4478); Vol 4, No 1 (2015): JANUARY; 32-50
2147-4478
 
Language eng
 
Relation http://www.ssbfnet.com/ojs/index.php/ijrbs/article/view/373/275