Common stock returns and inflation : an investigation of İstanbul Securities Exchange

This study investigates the existence of a relaticriship cet^^ıc-eгı returris or. conmon stccks and expected inflation i' lurke.. Ihie relationship: is tested within the fram£?v^ork of Fishe- Effect wising a single ei.i£^tion rezression mcDdel. The regressior» pa.raniete'~E are tested tc see whether an increase in expectez inflatizn is accoTip£vnjer by an ec-ic.l increase in nominal returrs. leavi-i the real rate cznstarit. T^x? test results sho-j that, when actual inflation rates are used to proxy expected inflaticr. hypothesis of existence c* Fisher Effect on stock returns is rejected; arc that it fails to be rejected whien Box Jenkins red^esentatizr. of inflatioTi IS used as the proxy. The dichotoory is Sviderice c' t^ie fact that ihz test results for Fisher Effect c"e n)ctr-cco3ogy dependent, and thiat inferences on Fisher's Theor~y snould t>z made with cauticr..