2017-18

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Inflation on Short Term Interest Rates at Sunness Capital India Pvt Ltd
(2018-10-16T12:21:38Z) Harshith, Vasantha
Stock market and Inflation are the barometers of the economy and both are the sensitive segments of the economy. Any changes in the policies of the country are quickly reflected in the stock market and inflation. There are different factors, which affect the stock markets like interest rates, company performance, future growth prospects, political stability, exchange rates etc. There are different factors, which affect the Inflation like the money supply, interest rates, faith in government's ability to protect the value of currency, monetary and fiscal policy, budgetary deficits etc. This study attempts to analyze the interlinkages between inflation and stock prices. The study is conducted by considering inflation and various indices for various periods. This is analyzed by using statistical tools like Augmented Dickey Fuller Unit root Test, Grangers Co-integration test and Grangers causality test. From the results it is clear that there is negative relationship between stock returns and inflation, and suggests that investors cannot use common stock investments as a hedge against rising prices or inflation. It is evident from the overall results that the causality runs from inflation to stock returns and also in the reverse order.