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Real Assets and Inflation: Which Real Assets Hedge Inflation

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  • Parajuli, Rajan
  • Chang, Sun Joseph

Abstract

Inflation is considered as a leading macroeconomic indicator, which might create substantial distortions in financial statements, future earnings, and overall performance of securities in the financial market. An inflation-hedging ability of an asset offers protection against inflation, which eliminates or at least reduces the uncertainty about the future real returns. Real assets like real estate, timberland, and farmland have been regarded as good inflation hedges, whereas financial assets like common stocks and bonds are considered as perverse hedges against inflation. Using the generalized Capital Asset Pricing Model (CAPM) to account for inflation, this study evaluates the inflation-hedging ability of several real assets. Consistent with the findings of previous studies, this study concludes that private-equity assets offer hedges against inflation to some extent, but stocks are found to be inferior hedges against inflation.

Suggested Citation

  • Parajuli, Rajan & Chang, Sun Joseph, 2015. "Real Assets and Inflation: Which Real Assets Hedge Inflation," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205283, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205283
    DOI: 10.22004/ag.econ.205283
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    References listed on IDEAS

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    1. Stulz, Rene M, 1986. "Asset Pricing and Expected Inflation," Journal of Finance, American Finance Association, vol. 41(1), pages 209-223, March.
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    3. Tommy Lundgren, 2005. "Assessing the Investment Performance of Swedish Timberland: A Capital Asset Pricing Model Approach," Land Economics, University of Wisconsin Press, vol. 81(3).
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    6. Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-565, September.
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    Cited by:

    1. Baral, Srijana & Mei, Bin, 2023. "Inflation hedging effectiveness of farmland and timberland assets in the United States," Forest Policy and Economics, Elsevier, vol. 151(C).
    2. Hultkrantz, Lars & Mantalos, Panagiotis, 2018. "Hedging with trees: Tail-hedge discounting of long-term forestry returns," Journal of Forest Economics, Elsevier, vol. 30(C), pages 52-57.

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    Agricultural Finance; Financial Economics;

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