'Real' Assets

Abstract:     
Traditionally, “real” assets such as inflation-indexed bonds, commodities and real estate were thought to have correlate well with inflation and thus provide protection against rising price levels. But many of these assets turn out not to be that “real.” While a single real bond provides a constant real return by definition, real bonds as an asset class has a correlation with inflation close to zero. Among commodities, only energy has been a decent inflation hedge. Gold, surprisingly, has been a poor inflation hedge. Real estate has some, but certainly far from complete, inflation-hedging ability. Cash (T-bills), in contrast, is one of the best inflation hedges.

Number of Pages in PDF File: 64

Keywords: Inflation, Commodities, Gold, Real estate, TIPS, real bonds, inflation risk premium, inflation hedge, precious metals, backwardation, normalization, REIT

JEL Classification: E31, E32, E43, G11, G12

working papers series