Is inflation a stock variable? Changes in stock prices are linked with macroeconomic behavior in advanced countries (Muradoglu et al., 2000). A stock variable is measured at one specific time, and represents a quantity existing at that point in time (say, December 31, 2004), which may have accumulated in the past. The result of the long-run relationship between GSE market returns, exchange rate, and inflation in Table 4 shows that the coefficient of inflation and exchange rate have a positive and negative significant impact on stock returns, respectively, since their values are less than 0.05. Take note that since stocks are high risk investments, we take on this risk and assume that we may or may not get this rate of return in the future.

For instance, national income in 2018 can be interpreted as a stock variable – as a measure at a point in time – for the year of reference even though it is a flow variable. A variable is a measure of quantity is known to fluctuate. This paper analyzes investor behavior depending on the flow-through capability (FTC) in the US stock market, because investors seek protection from inflation rate changes, and the FTC (a firm's ability to transmit inflation shocks to the prices of its products and services) is a key factor in investment decisions. A flow shows change during a period of time whereas a stock indicates the quantity of a variable at a point of time. This means that inflation and exchange rate have a significant long-run effect on GSE market returns. If you know the answer to this question, please register to join our limited beta program and start the conversation right now! The difference between stock and flow variables is an essential concept in finance and economics.

Calculating the equity flow variable is straightforward because there is only one category for equity flows in the mutual fund and closed-end fund/ETF tables. Examples of stocks are: wealth, foreign debts, loan, inventories (not change in inventories), opening stock, money supply (amount of money), population, … Ross Thus, wealth is a stock since it can be measured at a point of time, but income is a flow because it can be measured over a period of time. Stock prices, hence stock returns are generally believed to be determined by some fundamental macroeconomic variables such as interest rates, money supply, inflation, exchange rate, and Gross domestic Product. Similarly to the common used economic theory, the positive relationship of inflation and stock market can be explained through the interest rates. The risk premium is the variable rate we assume that the stock will likely gain in the future. For inflation variable, the coefficient is significant only in the first regime, where an increase in the inflation rate leads to higher Islamic index return in developed countries and to lower those in emerging countries.