University of Portsmouth, UK
This paper examines the relationship between stock returns
and inflation. We focus on various econometric techniques to
test this relationship, using monthly values of the Athens Stock
Exchange Price index and the Greek Consumer Price index over
the period 1988-2002. The results from a simple OLS model
show evidence of a positive but not significant relationship,
while when we consider a system of equations including lagged
values of inflation we find a negative but not significant effect of
lagged inflation to stock returns.
Using the Johansen cointegration test, we find that there is no long-run relationship
between stock returns and inflation in Greece. The results
indicate that the inflation rate is not correlated with stock returns.
Finally, from a dynamic point of view, the Granger-Causality
tests indicate evidence of no causality among these variables.