This paper investigates the behaviour of stock prices in Italy over the 1963-1995 period. By means of a time-series analysis of both the long- and the short-run properties of stock prices and other macroeconomic variables, we find strong evidence of a long-run equilibrium negative relation between the inflation rate and a real stock price index. The dynamic adjustment of stock prices towards the equilibrium relation is also analysed.

J.E.L. classification numbers: C32, E44, G10
Keywords: stock returns, interest rate, inflation, cointegration, structural VAR.