Abstract
This paper investigates potential impact of Australian CPI inflation news on industry-sorted stocks by using event study methodology. Among 11 industry indexes listed on the Australian Stock Exchange, we observe empirical evidences that impacts of inflation news on stock prices vary across industries. More importantly, we observe robust significant inflation news impact on Materials and Financials sector. These two sectors tend to perform in opposite direction around the inflation news announcement: Materials sector often accumulate significant negative abnormal returns compared to significant positive accumulated abnormal returns of Financials sector. To some extent, those significant abnormal results are contributed by unexpected rising inflation rate occurred during tightening monetary policy periods. Hence, our empirical evidences suggest that positive inflation shock is bad news for Materials, but good news for Financials during tightening monetary policy periods.
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