A note on the relationship between industry returns and inflation through a multiscaling approach

Many empirical studies investigate the Fisher hypothesis, which proposes a positive relationship between industry returns and inflation. The main contribution of this note is to put a new perspective on the relationship between industry returns and inflation in terms of the correlation, and the hedge ratio using wavelet analysis. Wavelets are treated as a “lens” that enables the researcher to explore relationships that previously were unobservable. Two important findings emerge. First, from the movements of wavelet correlation, overall, the correlation between industry returns and inflation does not decrease as the time horizon increases. Second, empirical results show that industry returns can be a hedge against inflation, depending on the particular industry.