Abstract
In this study, we attempt to identify the asset which has the best hedging characteristics against inflation. We study stock, bond, commodity, real estate and oil indexes. We also study these indexes tracking exchange traded funds (ETFs) to determine the most beneficial tradable asset in addition to the more theoretical index for inflation hedging. We find that, in our sample, oil is the best hedge against inflation, even though three in total are a good hedge—oil, gold and corn—with corn and oil being complete hedges, while gold is a partial hedge. Two assets have conflicting results depending on whether we examine the index or the ETF: the real estate index is a hedge, whereas real estate ETF is the opposite of a hedge. Similarly, the bond index is not related to inflation, whereas bond ETF is the opposite of a hedge. We find that stocks, soy and beef are not hedges against inflation.
Highlights
In this study, we attempt to identify the asset which has the best hedging characteristics against inflation
Two assets have conflicting results depending on whether we examine the index or the exchange traded funds (ETFs)—real estate index is a hedge, whereas real estate ETF is the opposite of a hedge
The bond index is not related to inflation, whereas bond ETF is the opposite of a hedge
Summary
We attempt to identify the asset which has the best hedging characteristics against inflation. Baur and Lucey (2010) examine the hedging characteristics of gold relative to stocks and bonds in the US, UK and Germany They find that, on average, gold is a good hedge and a safe haven for stocks. Reboredo (2013) examines the hedging characteristics of gold against oil He finds that gold is not a good hedge against oil price movements but that it can be a safe haven against extreme oil price movements. To the best of our knowledge, no comprehensive integrative study of stocks, bonds, gold, corn, soy, beef, real estate and oil as a hedge against inflation has been performed so far. Soy and beef are not hedges against inflation
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