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Inflation-Protecting Asset Allocation: A Downside Risk Analysis

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  • Tim Koniarski
  • Steffen S. Sebastian

Abstract

This paper studies the ability of cash, bonds, stocks and direct real estate to hedge inflation and optimal inflation-protecting asset allocations within a downside risk framework. Using a VAR model to capture predictable price dynamics, we find that the inflation-hedging properties of assets substantially change over the investment horizon. Cash clearly hedges inflation best in the short run. However, as the investment horizon increases, bonds, stocks and real estate become more attractive with respect to inflation-hedging. Real estate has the best qualities to protect investors against inflation on a medium and long-term basis. While cash plays the most important role in short-term portfolios, the weights of the inflation-protecting portfolios shift to real estate, stocks and bonds as the investment horizon increases.

Suggested Citation

  • Tim Koniarski & Steffen S. Sebastian, 2013. "Inflation-Protecting Asset Allocation: A Downside Risk Analysis," ERES eres2013_313, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2013_313
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2013-313
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    Cited by:

    1. Bienert, Sven & Sebastian, Steffen P. & Just, Tobias, . "Niedrigzinsumfeld und die Auswirkungen auf die Immobilienwirtschaft," Beiträge zur Immobilienwirtschaft, University of Regensburg, Department of Economics, number 8, August.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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