The Impact of Inflation on Stock Returns: An Empirical Study of the Swedish stock market

Abstract

This study examines the impact of inflation on stock returns within the Swedish OMXSPI index and its various sectors. Using linear regression models, data is analyzed from 2000 to 2023, incorporating control variables such as interest rates, government bond rates, GDP, and unemployment rates, as well as dummy variables for the 2008 Financial Crisis and the Covid-19 pandemic. The findings indicate a generally negative relationship between inflation and stock returns, with sectors like Financial Services, Consumer Goods & Services, and Real Estate showing significant sensitivity to inflationary pressures. Conversely, the Energy sector’s response was slightly positive and statistically insignificant. The results show the importance of considering sector-specific responses in economic analyses and highlight the complexity of market dynamics influenced by inflation. These results can be valuable for investors and policymakers trying to navigate the challenges that occur by inflation in the Swedish stock market.