Following the global financial crisis of 2007-2008, the empirical investigation into financial variables affecting the performance of stock markets has gained prominence in the field of research. This study becomes the first to investigate the asymmetric cointegration effects of inflation on the stock market returns for the Johannesburg Stock Exchange (JSE) using monthly data collected from 2003:01 to 2014:12. The empirical model used in the study is the recently developed momentum threshold

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... oregressive (MTAR) model. Indeed, our results advocate for a negative, nonlinear cointegration relationship between inflation and stock returns in South Africa with causality running uni-directional from inflation to stock returns. Our empirical results suggest two things. Firstly, investors cannot hedge against rising inflation by investing in equity stocks listed on the JSE. Secondly, monetary policy, through the use of inflation targets, can provide a stable financial environment for the growth of equity markets in South Africa.