An Empirical Study on the Relationship between Inflation Rate and Stock Return under the Three-Regime System: Based on the Markov-Switching VAR Model

doi:10.16382/j.cnki.1000-5579.2019.04.017

Abstract

Abstract:

The correlation between inflation rate and actual stock return rate has always been one of the hot issues in macroeconomics. By constructing a theoretical model of asymmetric relations between stock return and inflation rate and establishing the Markov Regime-Switching VAR model to explore their relationship under the three-regime system,we come to some conclusions:Stock return is low under low inflation,the highest under moderate inflation and the lowest under hyperinflation,except the coexistence of "deflation and bull market" during the second half of 2014;by giving inflation rate a positive external impact,actual stock return changes reversely in three regimes,so that the "riddle of Fisher Effect" does exist in the A-share market of China;actual stock return rate and inflation rate also show a negative trend when the economic system transits between systems by innovatively applying the regime-switching impulse response function.

Key words: stock return rate, inflation rate, A-share market, Markov-switching

LONG Cui-hong, WANG Hai-wei, YAN Yu-xin. An Empirical Study on the Relationship between Inflation Rate and Stock Return under the Three-Regime System: Based on the Markov-Switching VAR Model[J]. Journal of East China Normal University (Philosoph, 2019, 51(4): 164-174.

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