Inflation And Stock Market Returns In South Africa

Abstract

This paper investigated the relationship between stock market returns and inflation in South Africa and revealed that stock market returns and inflation in South Africa are positively related. An increase in inflation results in an increase in stock prices. The results also indicate that when all-share index is used as the measure of stock market returns, the causality is bi-directional. However, when gold index is used as a proxy for stock market returns, the causality is unidirectional, running from inflation to stock market returns. The positive association between these two variables suggests that equities are a hedge against inflation in South Africa.