Abstract

This study aims to investigate whether changes in general prices level, measured by the cost of living index (CLI), has any effect on share prices fluctuations, measured by share price index{SP1}. A mathematical model has been developed for this purpose, where the SPI is considered as the dependent variable influenced by the independent variable ~ CLI. Statistical data used in the analysis was collected on a monthly basis for the period of December 93 - June 1996, A possible use of the model is to help traders as well as government policy makers to understand share prices change and utilize such knowledge for their own purposes. The model which has been developed indicated that share prices are not subject to changes in general prices level, rather they moved independently. This result encouraged me to investigate, whether general prices changes affect share prices after sometime of its occurrence; therefore, I adjusted the model by introducing lag - time effect into it. Ten different attempts were made, with it lagged - time of one month between one and the other. But, again the results we obtained were almost similar to the previous one. Finally, a deficiency might exist in the indices figures which cause these results, or, fluctuations in share prices are not, indeed, affected by general prices level changes