Inflation and equity markets: investigating the time lag phenomenon
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School of Business |
Bachelor's thesis
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Date
2024
Department
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Mcode
Degree programme
(Mikkeli) Bachelor’s Program in International Business
Language
en
Pages
43 + 14
Series
Abstract
This thesis examines the relationship between inflation and stock market returns from 2003 to 2022, with a focus on identifying patterns in the context of regional and economic variations, and their implications for global market efficiency. Employing quantitative analysis through linear regression models across data from 42 countries, the study reveals a cyclical, pendulum-like interaction between inflation and stock market returns, characterized by varying optimal time lags that enhance predictive accuracy. The analysis shows that in developing regions, particularly in the Middle East and Africa, the relationship between inflation and stock returns is more pronounced and consistent, especially where inflation rates are higher, compared to developed regions with lower inflation rates. Furthermore, this thesis provides empirical support for the Adaptive Market Hypothesis by demonstrating that market efficiency globally exhibits a cyclical pattern, fluctuating in response to evolving economic conditions and market forces.Description
Thesis advisor
Inci, A. CanKeywords
inflation, stock market, time lag, market efficiency