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Inflation hedging products

In: Research Handbook of Financial Markets

Author

Listed:
  • Stefania D’Amico
  • Thomas B. King

Abstract

We discuss the possibilities for hedging inflation in U.S. financial markets, reviewing the literature and providing some new evidence. We emphasize that there is no one-size-fits-all approach to inflation hedging; the optimal hedge depends on the particular types of prices that an investor is exposed to and their horizons. In addition, the relative attractiveness of different inflation hedging instruments evolves over time, depending on the growth-inflation regime. This is reflected in the inflation risk premium (IRP), which measures the cost of inflation hedging. Our review of the empirical evidence on the IRP embedded in various assets illustrates how, after the global financial crisis, inflation risk evolved into disinflation risk, dictating a negative IRP for nominal bonds and a positive IRP for equities.

Suggested Citation

  • Stefania D’Amico & Thomas B. King, 2023. "Inflation hedging products," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 21, pages 470-489, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:20173_21
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    Keywords

    Economics and Finance;

    Statistics

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