Hedging Inflation Internationally

63 Pages Posted: 18 Jan 2010 Last revised: 2 Mar 2010

Date Written: January 15, 2010

Abstract

The objective of this paper is to explore and identify inflation as it is embedded in a broad range of asset classes beyond simply TIPS, oil, gold and real estate. The analysis is conducted primarily from the perspective of a United States investor however the results are validated across a range of countries that span the developed and emerging world including resource intense economies and those that have previously experienced hyperinflation. We find that an investor who is looking for a reasonable positive real return of 4.5% while minimizing the downside with respect to inflation will have an allocation that consists primarily of short-term bonds, longer-term bonds, some gold, some oil, and some emerging market equities. The weight of gold and oil together is less than 10% of the portfolio and is not always relevant for all countries. We also find that TIPS are only slightly effective for protecting against inflation conditional on an investor using a group of asset classes. The out-of-sample performance of the real return optimizations are quite promising, providing an emulative inflation protection strategy for international investors.

Keywords: Real returns, inflation, hedging, asset allocation

JEL Classification: G0, G11, G15, E31

Suggested Citation

Bruno, Salvatore and Chincarini, Ludwig B., Hedging Inflation Internationally (January 15, 2010). Available at SSRN: https://ssrn.com/abstract=1536959 or http://dx.doi.org/10.2139/ssrn.1536959

Salvatore Bruno

IndexIQ ( email )

800 Westchester Avenue
Suite S-710
Rye Brook, NY 10573
United States

Ludwig B. Chincarini (Contact Author)

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
358
Abstract Views
2,530
Rank
152,987
PlumX Metrics