Investing in Deflation, Inflation, and Stagflation Regimes
38 Pages Posted: 7 Jul 2022
Date Written: July 6, 2022
We examine asset class and factor premiums across inflationary regimes. As periods of high inflation and deflation are relatively uncommon in recent history, we use a deep sample starting in 1875. Moderate inflation scenarios provide the highest returns across asset class and factor premiums. During deflationary periods, nominal returns are low, but real returns are attractive. By contrast, real equity and bond returns are negative during a high inflation regime, and especially so during times of stagflation. During these ‘bad times’ factor premiums are positive, which helps to offset part of the real capital losses.
Keywords: inflation, deflation, stagflation, equity returns, bond returns, factor premiums
JEL Classification: G11, G12, G15, E31, E32
Suggested Citation: Suggested Citation