REAL STOCK RETURNS, INFLATIONARY TRENDS AND REAL ACTIVITY: Evidence from Malaysia
activity relationships. The finding shows that real stock returns are independent of inflationary trends in accordance with the Fisher hypothesis, which implies that the Malaysian stock market provides a good hedge against inflation. The Fama’s proxy hypothesis is then tested to check for the consistency of the relationships. The positive relationship between inflation and real economic activity and the positive relationship between
real stock returns and real economic activity that totally contradicts the Fama’s proxy hypothesis however are found, to some extent, be consistent with the explanation of conventional macroeconomic theories of the Philip’s curve.
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