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Inflation-Hedging Portfolios : Economic Regimes Matter

Brière, Marie; Signori, Ombretta (2012), Inflation-Hedging Portfolios : Economic Regimes Matter, Journal of Portfolio Management, 38, 4, p. 43-58. 10.3905/jpm.2012.38.4.043

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Type
Article accepté pour publication ou publié
Date
2012
Journal name
Journal of Portfolio Management
Volume
38
Number
4
Publisher
Institutional Investor Systems
Pages
43-58
Publication identifier
10.3905/jpm.2012.38.4.043
Metadata
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Author(s)
Brière, Marie

Signori, Ombretta
AXA France
Abstract (EN)
The exceptional rise in government deficits following the subprime crisis, the recent commodity price spikes and the increase in inflation volatility have revived the debate on medium to long-term resurgence of inflation. Using a vector-autoregressive model, this paper investigates the relationships between asset returns and inflation and the optimal strategic asset allocation for investors seeking to hedge inflation risk in two different types of macroeconomic regimes. In a volatile macroeconomic environment marked by countercyclical supply shocks, cash, inflation-linked bonds and precious metals play an essential role, while in a more stable environment (“Great Moderation”) with procyclical demand shocks, cash and nominal bonds play the most significant role, followed by precious metals, real estate and equities. An ambitious investor in terms of required real returns should have a larger weighting in equities, real estate and precious metals.
Subjects / Keywords
Inflation hedge; pension finance; shortfall risk; portfolio optimisation
JEL
E31 - Price Level; Inflation; Deflation
G11 - Portfolio Choice; Investment Decisions
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
G23 - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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