Can Stocks Hedge against Inflation in the Long Run? Evidence from Ghana Stock Market

Abstract

Based on Fisher (1930) hypothesis, we test whether Ghana stock market can provide hedge against inflation in the long run using cointegration analysis. Using data for the Databank stock Index (DSI) from January 1991 to December 2007, the results give strong support for the hedge property. Thus Ghana stock market provides full hedge against inflation. The outcome of this study holds important lesson for the market participants in developing market (many of which have experienced decades of higher inflation) that current inflation may not necessarily be associated with expectations of lower future returns.