International Journal of Business and Economics Volume 22, No. 1 June, 2023

The Impact of Inflation Measures on Asset Returns: Evidence from India

Gurmeet Singh

IFMR Graduate School of Business, Krea University, India

Muneer Shaik

School of Management, Mahindra University, India.

Abstract

This study investigates the impact of inflation measures in India like the Wholesale Price Index (WPI) and Consumer Price Index (CPI) on different assets returns like equity, bond, and gold for the period from June 2013 to April 2020. This period is defined as an inflation switching regime. The unit root test, Granger causality, multiple regression, quantile regression, and VAR model, along with the Impulse response function, were employed to examine the effect of inflation. Based on regression, we find that equity act as a marginal hedge against the wholesale price index, and bond provides a hedge against the consumer price index. However, none of the asset’s i.e., equity, bond, or gold act as a hedge against the unexpected inflation component. Further, based on Vector Autoregression (VAR) analysis, we find that past values of asset returns have no significant effect on inflation. The study also found that the hedging potential of any asset is a function of inflation switching time period.

Keywords：Asset Returns, Inflation, Stock Market, Gold, Bond

JEL Classifications：G10, E31, G11

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