Title

Does inflation affect sensitivity of investment to stock prices? Evidence from emerging markets

Author's Department

Management Department

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sciencedirect.com/science/article/abs/pii/S1544612316303087

All Authors

Omar Farooq; Neveen Ahmed

Document Type

Research Article

Publication Title

Finance Research Letters

Publication Date

12-31-2018

doi

https://doi.org/10.1016/j.frl.2017.10.019

Abstract

This paper uses data from 37 emerging markets and shows that investment of firms headquartered in countries with higher inflation is significantly less sensitive to their stock prices than that of firms headquartered in countries with lower inflation. We argue that stock prices are less informative in countries with high inflation. As a result, managers are less likely to use stock prices in their investment decisions, thereby lowering sensitivity of investment to stock prices in countries with higher inflation.

First Page

160

Last Page

164

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