The Effect of Inflation Rates on Stock Market Returns in Sudan: The Linear Autoregressive Distributed Lag Model

Abstract

This study investigates the effect of the inflation rate in Sudan on stock returns on the Khartoum Stock Exchange. The linear autoregressive distributed lag (ARDL) model was applied to monthly data over the period from September 2003 to December 2019, with the exchange and money supply growth rates, and Murabaha profit margin as control variables. As no previous studies have studied the effect of inflation on stock returns by means of the ARDL approach, this study intends to fill this gap in the current body of literature. The results show that the inflation rate exerts a significantly negative effect on stock returns in both the short and long term, which is crucial to the understanding of all, but especially developing, economies, such as Sudan. First, policymakers must formulate strategies to control inflation and stabilize the stock market; second, any decision-making on short-and long-term investments should take account of these findings. Contribution/Originality:This study offers two contributions to the existing literature with regard to the effect of inflation rates on stock returns. First, only two similar studies undertaken in Sudan are known to exist. Second, neither of these studies adopted the linear ARDL model, which is regarded as the most reliable analysis technique.

The Role of Profitability as an Intervening Variable on the Effect of Inflation, Interest Rates, and Exchange Rates on Stock Returns (Study on Consumer Goods Industry Sub-Sector Companies Listed on the Indonesia Stock Exchange for the 2017-2020 Period)

“…Because no one is interested in stock instruments offered by business actors engaged in the production of consumer goods in the capital market, changes in stock prices will inevitably decrease and result in reduced capital gains. The findings of this study are consistent with previous research conducted by Akwe and Garba (2019), Hidayat et al (2018), Basarda et al (2018), Omer Elmahgop and Sayed (2020), and Esti Kontaki and Affid Diena (202 1), indicating that an increase in inflation will have a negative impact on the ability of investors to realize capital gains.…”

“…Rising evidence that points to the impact of inflation on return on investment include research by Hidayat et al(2018), which shows that inflation negatively impacts return on investment. The results of this study were corroborated by research done by Omer Elmahgop and Ahmed Sayed (2020). They found that inflation levels significantly negatively impacted returns on investments in both short-and long-term time frames.…”

Impact of Khartoum Stock Exchange Market Performance on Economic Growth: An Autoregressive Distributed Lag ARDL Bounds Testing Model

“…Sudan's economy, particularly in recent years, has suffered from high inflation, fluctuations in exchange rates, supply shortages, and other economic problems. These problems, especially high inflation and fluctuations in exchange rates, negatively affect the Khartoum Stock market returns as much as stock prices (Omer and Ahmed 2020;Mohamed and Elmahgop 2020).…”

Investigating the Impact of Inflation and Other Macroeconomic Variables on Stock Returns in Nigeria

“…Fisher's [8] work assumed that the monetary and real sectors of the economy were largely independent. As a result, the expected returns on assets, such as stocks, should move one-to-one with inflation rates, providing a hedge against inflation [12]. This concept is referred to as the Fisher effect, also known as the Fisher hypothesis.…”

“…As reported by the Central bank of Nigeria (CBN) in its annual statistical bulletin, the inflation rate was as high as 18.6% in 2016 and has consistently remained high since then, closing at 15.75% in December 2020. Therefore, understanding the impact of inflation on stock returns is critical, not only for investors but also for researchers, policymakers, and financial analysts [12].…”