A Study Of The Impact Of Inflation On The Stock Returns In China

With the development of stock market, stock as an investment product is recognized by thepublic. Investors gradually pay attention to the inflation in the real economy from the simple valueof stock. Whether the stocks provide a hedge against inflation; whether the short and medium-term effects of inflation on the stock returns are the same; how the expected and unexpectedinflation influence the different industry stock returns become the focus.Therefore, it has thecertain economic significance and practical value to research the relationship between inflation andstock returns.This article discusses the influence of China’s inflation rate to the Shanghai stock index andten different industry stock returns. Respectively analyzes the short-term and medium-term, andexamines the announcement effect of inflation on stock returns and information asymmetry effect.In addition, we also explore the impact of inflation on the stock returns under different types ofinflation. we also use the VAR model in stock returns, expected inflation and unexpected inflation,analysis the dynamic impact of the expected inflation and unexpected inflation on the stock returnsin different industries, and further understand the phenomenon of industry differentiation in thestock market.Empirical evidence suggests that in the analysis of inflation announcement, expected inflationhas little affect on stock return, however the unexpected rate of inflation has a significant negativeimpact;the impact occurred mainly in the announcement day, a few occurred in a few days after theannouncement; no asymmetry exist for the announcement news, investors will not care about thegood news or bad news.In the medium-term, the expected inflation rate has different impacts onShanghai stock index in different inflation: no significant impact in the high inflation, but theimpact on low inflation is significantly positive. Unexpected inflation has significantly negativeinfluence in the high and low inflation on the Shanghai stock index. At the same time, theunexpected inflation has a significant negative effect on the8industries in the low inflation.Impulse response analysis shows that, on the short term,services, real estate and financial canresist the impact of inflation on a certain extent.However the market fails to hedge against inflationin the long term,but do not rule out the good performance of some stocks in each industry.