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Our study provides evidence on the long-term Fisher effect on stocks in nine Pacific-Basin
markets-Australia, Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines,
Singapore, and Thailand. While we perform the regression analysis with stock
return and inflation rates, we use the levels of stock prices and corresponding changes
in inflation in our cointegration tests. Evidence has shown that it is impossible to measure
fully both contemporaneous and inter-temporal correlations between stock returns in
real terms and inflation when variables are evaluated by their first differences (Gallagher,
1986). As Hendry (1986) and Juselius (1991) observe , when a time series is differenced,
long-run information contained in the levels of variables is lost.7 Consistent with the findings
of Granger (1986), Engle and Granger (1987) and Anari and Kolari (2001), the
use of levels allows us to fully evaluate long-term information that may be contained
in continuous time series variables, as opposed to focusing on