The Relationship between Inflation and Stock Prices in Zambia


  • Daniel Chidothi
  • Johannes Peyavali Sheefeni Sheefeni Department of Economics University of Namibia


Inflation, stock prices, unit root, Granger-causality, vector autoregressive, Zambia


This study examines a relationship between inflation and stock prices for Zambia, over the period 1999–2011, using monthly all share stock prices and inflation rates. The study employed Augmented-Dickey-Fuller and Phillip-Perron for testing the stationarity of the series, Granger-causality test is used to determine the causality relationship between the variables, VAR and Cointegration techniques are employed to determine the short run and long run relationship respectively between the two variables. The unit root test results show that the series are non-stationary at level form but after differentiating they become stationary, the causality test results show a one way causal relationship running from inflation to stock prices and not vice-versa. There was no cointegration found among the variables meaning that there exists only a short run relationship. In general the results support the economic theory which suggests a negative relationship between inflation and stock prices.


African Economic Outlook, (2012). Zambia.

Akmal, M. S. (2007). Stock returns and inflation: An ARDL econometric investigation utilizing Pakistani data. Pakistan Economic and Social Review, (5), 89-105.

Al-Zoubi, M. & Al-Sharkas, A. (2010). Stock prices and inflation: evidence from Jordan, Saudi-Arabia, Kuwait, and Morocco. Economic Research Forum.

Anari, A. & Kolari, J. (2001). Stock prices and inflation.The Journal of Financial Research, 4(24), 587-602.

Bodie, Z. (1976). Common stocks as a hedge against inflation.The Journal of Finance, 2(30), 459-470.

Fama, E. F. (1970). Efficient capital markets: a view of the theory and empirical work. Journal of Finance, 2(25), 383-417.

Fama, E. F. & Schwert, G.W. (1977). Assets returns and inflation. Journal of Financial Economics, (5), 115-146.

Geygser, J. M. & Lowie, G.A. (2001). The inpact of inflation on stock prices in two SADC countries. Department of Agriculture economics, extension and rural development. University of Pretoria.

Gujarati, D. N. (2004). Basic Econometrics.The McGraw-Hill companies.

Gujarati, D. N. & Sangeetha. (2007). Basic econometrics.TheMcGraw.Hill companies.

Jaffe, J. F. & Mandelker, G. (1976). The “Fisher Effect†for Risky Assets: An empirical investigation. The Journal of Finance, 2(31), 147-458.

Madala, G. S. (1992). Introduction to Econometrics 2nd ed. Macmillan publishing company, New York.

Mishkin, F. S. (2004). The economics of money, banking, and financial markets 7th ed. Addison-wesley.

Mousa, S. N., Al-safi, W., Hasoneh, A. & Abo-orabi, M. M. (2012). The relationship between inflation and stock prices (a Jordan case). IJRRS, 1(10), 46-52.

Nelson, C. R. (1976). Inflation and rates of return on common stocks.The Journal of Finance, 2(31), 471-483.

Omran, M. & Pointon, J. (2001). Does the inflation rate affect the performance of the stock market? The case of Egypt. Emerging markets review, (2), 263-279.

Sheefeni, J.P.S. & Ocran, M. K. (2012). Monetary policy transmission in Namibia: a review of the interest rate Channel. Journal of Studies in Economics and Econometrics, 36(2), 47-64.

Solnik, B. (1983). The relationship between stock prices and inflationary expectations: the international evidence. The Journal of Finance, 1(38), 35-48.




How to Cite

Chidothi, D., & Sheefeni, J. P. S. (2013). The Relationship between Inflation and Stock Prices in Zambia. Asian Journal of Business and Management, 1(4). Retrieved from