Investigating The Relationship between Stock Market Returns and Inflation in Different Time Scales in Tehran Stock Exchange using Wavelet transform

This paper presents a new perspective on the Fisher hypothesis, which states a positive relationship between nominal stock returns and inflation. The new approach is based on a wavelet multiscaling method that decomposes a given time series on a scale-by-scale basis. The time series of inflation and stock return are decomposed into three wavelet details and one wavelet smooth. Empirical results show that there is a positive relationship between stock returns and inflation at 2- month period and at 8-month period, while a negative relationship is shown 4-month period. Also, no significant relationship was revealed in one month time horizon. This indicates that the nominal return results are supportive of the Fisher hypothesis for risky assets in d2 and s3 of the wavelet domain, while the stock returns do not play a role as an inflation hedge at one month and four month timescales.