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.