Stocks as Hedge against Inflation in Pakistan: Evidence from ARDL Approach

Abstract

This article implements autoregressive distributed lag (ARDL) bounds testing approach to cointegration to explore whether or not stocks are good hedge against inflation in case of a transition economy like Pakistan, using annual data for the period 1971–2008. Ng–Perron (2001) unit root test is applied to determine the stationarity of the series. The results suggest that stocks act as good hedge against inflation both in the long and short runs. The findings should help formulate appropriate policy to encourage investment in financial markets and thereby promote economic growth.