Stock Market Return and Stagflation Under Two Control Variables: International Evidence

Abstract

The study investigated the impact of stagflation on stock market returns under two Control variables that economic policies and the characteristics of the stock market. The study included nine countries (Brazil, Egypt, Indonesia, Korea, Malaysia, Pakistan, Singapore, South Africa, and Turkey) during the period from 2005 to 2018. We found that for the economic policies within the lag period under stagflation, the characteristics of each economy and stock market within and outside of the lag period were between 25.74% and 16.20% of the returns of stock markets, respectively. The current study explains the different results according to the different methods of study, in particular with regard to the use of the lag period, which was beneficial for the economic policy but not beneficial with stagflation. In addition, the different abilities of each economy created value-added from production factors with the different levels of efficiency of the stock exchanges. Finally, rational investment in stock exchanges requires the ability to classify the policies and economic variables and determine the extent of their time contributions to caret stock return within/outside the lag period. This area is a fertile field in financial economics research, particularly to develop theories and models.