Relationship between inflation and stock market returns

This thesis investigates the relationship between inflation and nominal stock returns in Denmark, Finland, Norway and Sweden during 2003-2024 by testing the Fisher hypothesis. Using monthly data, four models are estimated: a contemporaneous inflation model, a lagged inflation model, an expected and unexpected inflation model and cross-sectional joint model. The results show that inflation has a negative but weak contemporaneous effect in the Nordics. Lagged inflation effects are significantly negative in all countries. Expected inflation matter only in Finland, while unexpected inflation is negative but insignificant across the Nordics. This evidence does not support the Fisher hypothesis. Overall, inflation-return relationship appears limited in the Nordic low-inflation, high-credibility environment.