Does the inflation rate affect the performance of the stock market ...

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272 ( ) M. Omran, J. Pointon Emerging Markets Reiew 2 2001 263279 and 3 years was significant at the 5 and the 10% level, respectively, implying that the value of trade may be affected in the short run by its previous performance. Since the ECM indicated a significant effect as well as the differenced independent variable, the hypothesis, which stated that the value of trade increases as the inflation rate decreases, cannot be rejected, implying a negative long- and short-run relationship between the variables. With regard to the inflation rate model of the relationship with the volume of trade, the results showed that this model contains a significant ECM with a lagged differenced inflation rate of 1 and 3 years and a lagged differenced autoregressive variable of 1 year, that is confirming the co-integration relationship found in the previous analysis. The lagged differenced-dependent variable for 1 year was significant at the 10% level, suggesting that the value of trade may be affected in the short-run by its performance in the previous year. In addition, the coefficient of the Table 3 Specific error correction models for the impact of the inflation rate upon market activity variables Dependent Autoregressive Independent Error-correction R variable variables variables mechanism Ž F-prob. . Ž differenced. Ž differenced. Ž differenced. or constant Ž. Ž . Value of Value of Inflation t ECM t 1 66% trade Ž. t trade Ž t 1. Constant Ž 3% . 2 Value of Ž . trade t 3 Volume of Volume of Inflation Ž t 1. ECM Ž t 1. 57% trade Ž. t trade Ž t 1. Inflation Ž t 3. Ž 7.5% . Constant Ž . Ž . Number of Number of Inflation t 1 ECM t 1 74% trans. Ž. t trans. Ž t 2. Inflation Ž t 3. Ž 3% . Number of trans. Ž t 3. Constant Number of Number of Inflation Ž. t ECM Ž t 1. 82% traded traded Constant Ž 0.0% . cos. Ž. t cos. Ž t 1. Ž. Ž . Value of Value of new Inflation t ECM t 1 80% new issues Ž t 2. Constant Ž 0.0% . issues Ž. t Value of new issues Ž t 3. denotes 10% level of significance; denotes 5% level; and denotes 1% level.
( ) M. Omran, J. Pointon Emerging Markets Reiew 2 2001 263279 273 differenced inflation rate lagged for 3 years was significant at the 10% level suggesting a short-run relationship between the variables. Since the inflation rate showed a negative coefficient in the long-run static regression, the hypothesis, which stated that the volume of trade increases as the inflation rate decreases, cannot be rejected, that is, there is a negative long-run and short-run relationship between the variables. Concerning the number of transactions, the results showed that this model contains a significant ECM with a lagged differenced inflation rate of 1 and 3 years, and a lagged autoregressive-dependent variable of 2 and 3 years. The coefficient of the differenced autoregressive variable lagged for 2 years was significant at the 10% level suggesting that there is a short-run relationship between the number of transactions and the performance in the previous years. In the meantime, the coefficients of the differenced inflation rate with a lag of 1 and 3 years were significant at the 10 and 5% level, respectively, suggesting a short-run relationship between the variables. Since the inflation rate showed a negative coefficient in the long-run static regression, the hypothesis, which stated that the number of transactions increases as the inflation rate decreases, cannot be rejected, implying a negative long- and short-run relationship between the variables. The inflation rate model of the relationship with the number of traded companies contains a significant ECM with a lag of 1 year for the differenced autoregressive variable and a lag of zero for the differenced inflation rate. However, the model indicated that the autoregressive variable lagged for 1 year was significant at the 1% level, which means that the number of traded companies may be affected in the short-run by its performance in the previous year. In the meantime, the coefficient of the differenced inflation rate without a lag indicated an insignificant effect, that is, there is no short-run relationship with the number of traded companies. Since the coefficient from the static long-run equation showed a negative sign, in this case, the hypothesis, which stated that the number of traded companies increases as the inflation rate decreases, cannot be rejected, indicating a negative long-run relationship between the variables. Lastly, the inflation rate model, which incorporates the value of new issues Ž including capital increases. indicated a significant ECM with a lag of 2 and 3 for the differenced autoregressive variable and without a lag for the differenced inflation rate. However, the model indicated that the differenced autoregressive variable lagged for 2 and 3 years was significant at the 10 and 5% level, respectively, which means that the value of new issues Ž including capital increases. may be affected in the short-run by its performance in the previous years. In the meantime, the coefficient of the differenced inflation rate without a lag was significant at the 10% level, implying a short-run relationship between the variables. In addition, the coefficient from the static long-run equation indicated a negative sign, which means that the relationship between the variables is negative. In turn, the hypothesis, which stated that value of new issues Žincluding capital increases. increases as the inflation rate decreases, cannot be rejected, indicating a negative long- and short-run relationship between the variables.
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