IS INVESTMENT IN STOCKS A GOOD HEDGE AGAINST INFLATION IN SOUTH AFRICA?
IS INVESTMENT IN STOCKS A GOOD HEDGE AGAINST INFLATION IN SOUTH AFRICA?

Summary/Abstract: This paper examines the relationship between common stocks and price increases in South Africa. The study employed the ordinary least squares (OLS) and autoregressive integrated moving average (ARIMA) methods on monthly data covering the period January 2008 to January 2021. The empirical findings shows that the Fisher’s hypothesis holds for the South African market because of the positive relationship between the two variables. Moreover, the overall index (stocks) have a favorable and statistically significant relationship with ex-post inflation. That is, the ex-post model shows that there is hedge against inflation in South Africa even when using the overall index. Similarly, the ex-ante model also depicts a relationship that is positive between the variables and that the overall index is indeed a good hedge against the expected inflation. That is why, overall, the favorable correlation between CPI and stock market returns shows that stock returns in South Africa were a good fence against price hikes.

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