Inflation Hedging for Long-Term Investors

39 Pages Posted: 28 Apr 2009  

Shaun K. Roache

International Monetary Fund (IMF)

Alexander P. Attie

International Monetary Fund (IMF)

Date Written: April 2009

Abstract

Long-term investors face a common problem - how to maintain the purchasing power of their assets over time and achieve a level of real returns consistent with their investment objectives. While inflation-linked bonds and derivatives have been developed to hedge the effects of inflation, their limited supply and liquidity lead many investors to continue to rely on the indirect hedging properties of traditional asset classes. In this paper, we assess these properties over different time horizons, in the context of a diversified portfolio. Using a vector error correction model, we find that effective short-run hedges, such as commodities, may not work over longer horizons and that tactical asset allocation could enhance investment returns following inflation surprises.

Keywords: Inflation, Capital markets, Private investment, Financial instruments, Hedge funds, Commodities, Asset prices, Economic models

Suggested Citation

Roache, Shaun K. and Attie, Alexander P., Inflation Hedging for Long-Term Investors (April 2009). IMF Working Papers, Vol. , pp. 1-37, 2009. Available at SSRN: https://ssrn.com/abstract=1394810

Shaun K. Roache (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Alexander P. Attie

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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