Infrastructure: Real Assets and Real Returns
AbstractLittle empirical work has been done on the return properties of infrastructure as an asset class despite increased allocations by institutional investors. Managers claim infrastructure investments offer real return benefits via a combination of monopolistic and defensive assets. We build a robust factor model of infrastructure returns and estimate the model using U.S. and Australian infrastructure and utility data. We find evidence of excess returns and inflation hedging, but not of defensive characteristics during equity market downturns. We also compare the performance of regulated infrastructure assets to option-based models designed to synthetically replicate infrastructure asset returns, and identify the regulatory risk premium (the premium for government regulation of infrastructure investments). We find that the returns from infrastructure have outperformed option-based replicating strategies over the period from 1995-2009 in Australia, for historical reasons. Finally, we suggest how improved defensive and inflation hedging characteristics can be obtained using a combination of inflation linked bonds and covered call strategies.
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Bibliographic InfoPaper provided by The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney in its series Working Paper Series with number 11.
Length: 50 pages
Date of creation: 01 Sep 2011
Date of revision:
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inflation hedging; regulatory risk premium; infrastructure assets;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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