Measuring the sensitivity of bond, equity, gold and real estate investment returns to changes in the level of inflation

In times of accelerating inflation, financial instruments to protect capital against loss of value are becoming increasingly important. It is therefore an open question as to what to invest in in order to, if not outpace, then at least match the level of inflation in investment returns. This has raised the question of whether there are such opportunities in the market. However, according to some authors, this type of analysis is not easy and simple econometric methods are not able to demonstrate the relevant relationships. One example is real estate investments, which - especially in the short term - may not be an adequate hedge against the impact of inflation on capital values. (Fogler 1984) The idea therefore arose to test a modified beta coefficient, a measure of sensitivity, in addition to the commonly used methods of analysis, as a tool to assess the response of the profitability of investments in selected assets to changes in the level of inflation (Bampinas and Panagiotidis, 2015; Arnold and Auer, 2015). For the purpose of the research paper, the objective of the study was formulated: to demonstrate whether investments in the capital market are able to protect capital from depreciation caused by inflation. In order to realise the objective, a research hypothesis was formulated: investments in the bond, stock, gold and real estate markets are able to effectively protect the capital held against the negative impact of inflation. Research on the relationship between investments in different asset classes and inflation is abundant, although it mainly concerns periods in the economy when elevated levels of inflation were observed. During periods when inflationary processes lose their relevance, interest in protecting capital from loss of value fades. Meanwhile, the global economy is constantly changing and the knowledge from the 80s or 90s of the previous century is no longer satisfactory. New investment opportunities are emerging worldwide and access to assets of different classes is much easier for even small investors. Thus, the proposed research will fill a gap in the analysis of capital protection options against inflation. The research will be carried out in the markets of Central European countries. The author's study will use quarterly data including bond market indices, equity market indices, gold price indices and property indices, as well as quarterly inflation data. The study will use Spearman's correlation analysis (Spearman 1987), and cointegration analysis using the Engle - Granger test (Engle, Granger 1987) and sensitivity analysis using a modified beta coefficient (Sharpe 1964, Jensen 1968).