Do stock returns provide a good hedge against inflation? An empirical assessment using Turkish data during periods of structural change

- I study the relation between stock returns and inflationary expectations in Turkey.
- Panel of stock market firms allow me conduct company and industry level analysis.
- Inflationary expectations survey data is used to test Fisher effect under distinct monetary regimes.
- Ex-ante/ex-post inflationary expectations have positive/negative influence on stock returns.
- Holding stocks of manufacturing versus service industry firms provides a better hedge against inflation.

This paper provides empirical evidence on the relation between stock returns and inflationary expectations using a panel of firm level data covering a broad range of industries and Turkish common stock market index from 1986 to 2013. I use survey of inflationary expectations to examine Fisher hypothesis where I show, no matter the data is aggregate or disaggregate; ex-ante inflationary expectations and stock returns are positively related, whereas ex-post inflationary realizations are negatively related. I find that holding stocks of manufacturing industry firms provide for about 15% better hedge in comparison to that of service industry firms.