Title: Inflation hedging effectiveness of an emerging Asian market: the case of Malaysia

Authors: Mansor H. Ibrahim

Addresses: Faculty of Economics and Management, Department of Economics, Universiti Putra Malaysia, 43400 Serdang UPM, Selangor, Malaysia

Abstract: This paper empirically examines the inflation-hedging property of an emerging stock market, Malaysia, for full sample (1988–2008), pre-crisis sample (1988–1996) and post-crisis sample (1999–2008) by means of asymmetric cointegration and asymmetric error-correction modelling. The focus is on the long-run relation between stock prices and consumer prices, the adjustment speed of the stock market to restore the long-run relation and their short run interactions. From the analyses, we uncover evidence supporting the long-run inflation-hedging ability of the Malaysian stock market only during the pre-crisis period. Its hedging ability, however, weakens for the full sample and is absent post-crisis. In the short run, we note that rising inflation tends to be followed by stock market decline.

Keywords: inflation hedging; stock markets; asymmetry; Malaysia; emerging markets; stock prices; consumer prices; rising inflation; stock market decline.

DOI: 10.1504/IJEBR.2011.042315

International Journal of Economics and Business Research, 2011 Vol.3 No.5, pp.514 - 525

Published online: 04 Sep 2011 *

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