The Research On The Relations Between Stock Returns And Inflation In China Based On The Nonlinear Models

Stock return-inflation relations are still economists' interest field. According to the Fisher hypothesis, stock is usually on behalf of the claim of physical assets, and when economy is in inflation, the stock should be an asset which can avoid the risk of inflation. In the circumstance of high inflation at present, can shares in Chinese stock markets be well hedged against inflation and become investors' value-keeping and value-increasing tool? This question draws much attention of investors and researchers.Based on the theoretical and empirical studies by domestic and foreign researchers, in this paper, we apply several non-linear econometric models and methods to investigate the relationships between stock returns and inflation in China by using the latest data. And we draw the following conclusions: 1. Fisher effect does not hold in China, and there is a negative correlation between the stock return rate and inflation rate. The stock return can not withstand the impact of inflation; 2. Even there exists short-term weakly positive correlation between the real stock return and inflation in Chinese markets, it is not enough to explain that the stocks are well hedged against inflation. In the last, based on the combination of empirical results with China's economy background, we provide some pieces of advice: When making policy, the management should act according to the long-term trend of the inflation or the current inflation situation. Taking advantage of opportunities, they can formulate the reasonable policy, which can promote the healthy development in Chinese stock market. To investors, they should distinguish these two kind tendencies of inflation clearly, adjust the investment strategy in the right moment, in order to obtain the greater investment yield.