Abstract
A negative relationship between stock market returns and inflationary trends has been widely documented for developed economies in Europe and North America. This study provides similar evidence for India. The study investigates the relationship in light of Fama's (1981) explanation that centers around linkages between inflation and real activity, and between stock returns and real activity. The results provide only partial support for Fama's hypothesis. The relationship between real activity and inflation does not account for the negative relationship between real stock returns and the unexpected component of inflation. ( JEL: F31,053)
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