Inflation and Sectoral Stock Market Returns in Poland: Evidence from GARCH and Quantile Regression Approaches

Abstract

We examine how distinct equity sectors on the Warsaw Stock Exchange respond to inflationary shocks, extending the Fisher hedge hypothesis beyond aggregate market indices. Drawing on monthly data from October 2009 to September 2025, our analysis captures the effects of headline inflation, long-term inflation expectations, and cyclical inflation components on nominal and real returns. To address volatility clustering and asymmetric market conditions, we employ GARCH specifications alongside quantile regressions, while also controlling for Economic Policy Uncertainty (EPU) and Geopolitical Risk (GPR). The empirical evidence points to pronounced cross-industry heterogeneity. Banking stocks stand out by offering the strongest inflation protection, with the chemicals sector providing more modest benefits. Under traditional mean-based models, real returns across most industries appear disconnected from price level changes, which aligns with the Generalized Fisher hypothesis. Yet, quantile estimates reveal a highly state-dependent reality: equities successfully protect purchasing power during market expansions, but this capacity deteriorates under market stress. Interestingly, although elevated EPU and GPR directly depress real returns, the core inflation-hedging features of resilient sectors survive these macro-institutional shocks. Ultimately, inflation protection depends heavily on both the specific industry and the prevailing market regime.