Working Paper Series, Department of Economics, Copenhagen Business School
Jan Overgaard Olesen
STOCKS HEDGE AGAINST INFLATION IN THE LONG RUN: EVIDENCE FROM A COIN- TEGRATION ANALYSIS FOR DENMARK
Abstract: We suggest an alternative approach to testing whether
stocks provide a hedge against
inflation in the long run. Based on a
simple structural model, we test the hedge hypothesis in
terms of the
long-run linkage between stock prices and the general price level, as
by cointegration analysis. Using data for the Danish stock
market over the post-World War
II-period, results give strong support
for the hedge property, defined in the narrow sense of
a perfect hedge.
This contrasts with the weak support found in the literature and also
represents stronger support than produced by standard methods. We argue
approach has the advantage of allowing for a clear distinction
between short- and long-run
dynamics of stock prices which adjust
slowly to long-run equilibrium.
Keywords: Stocks; Hedge; Inflation; Denmark; Stock prices; (follow links to similar papers)
JEL-Codes: G11; (follow links to similar papers)
55 pages, March 1, 2000
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