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Inflation and Individual Equities

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  • Brière, Marie
  • Ang, Andrew
  • Signori, Ombretta

Abstract

We study the inflation hedging ability of individual stocks. While the poor inflation hedging ability of the aggregate stock market has long been documented, there is considerable heterogeneity in how individual stock returns covary with inflation. Stocks with good inflation-hedging abilities since 1990 have had higher returns, on average, than stocks with low inflation betas and tend to be drawn from the Oil and Gas and Technology sectors. However, we show that the time variation of stock inflation betas is substantial. This makes it difficult to construct portfolios of stocks that are good inflation hedges out of sample. This is true for portfolios constructed on past inflation betas, sector portfolios, and portfolios constructed from high-paying dividend stocks.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/7847.

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Date of creation: 2012
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Publication status: Published in Financial Analysts Journal, 2012, Vol. 68, no. 4. pp. 36-55.Length: 19 pages
Handle: RePEc:dau:papers:123456789/7847

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Keywords: Portfolios; inflation hedging; stock market;

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Cited by:
  1. Tiong, Serena, 2013. "Pricing inflation-linked variable annuities under stochastic interest rates," Insurance: Mathematics and Economics, Elsevier, vol. 52(1), pages 77-86.

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