Allocating Commodities in Inflation Hedging Portfolios: A Core Driven Global Macro Strategy
Amundi Asset Management; University of Paris 2 Pantheon-Assas
October 15, 2012
Recent academic studies have shown that since the mid-nineties, the pass-through of exogenous oil shocks into headline inflation has been increasing while the pass through into core inflation seems to have ceased. This paper explores the implications in terms of commodity allocation for inflation hedging portfolios these recent works have paved the way for. We proceed by first evidencing a link between the headline to core inflation spread and tradable commodities. We subsequently intend to exploit this link in three ways: Firstly by devising an efficient strategic allocation using core inflation forecasts to determine the commodities’ natural weight in the portfolio as dictated by our macro approach. Secondly by testing a tactical allocation strategy which would time the pass-through cycle to dynamically determine the optimal share of commodities in the allocation. And finally by proposing a strategy to arbitrage core inflation-linked derivatives by cross-replicating them with commodity portfolios.
Number of Pages in PDF File: 25
Keywords: Inflation Hedging, Portfolio Allocation, Commodities, Core Inflation, Global Macro, Inflation Pass-through, Arbitrage Pricing, Strategic Allocation, Tactical Allocation
JEL Classification: C58, C63, E3, G11, Q02, N1working papers series
Date posted: April 28, 2012 ; Last revised: January 14, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.469 seconds