On the Dynamics of Inflation-Stock Returns in India

Abstract

In this paper, an attempt is made to examine the relationship between inflation and stock returns in India using spectral and time-frequency methods. Scale specific relation between inflation and stock returns is unraveled, allowing us to capture the relationship at varying investment horizons. The results based on monthly data from 1994:5 to 2014:11, obtained using spectral and wavelet techniques, reveal that there exist no significant pro-cyclical interdependencies between inflation and stock returns, implying that stock returns is no longer an adequate hedge against inflation.