Investing in Deflation, Inflation, and Stagflation Regimes

Financial Analysts Journal, 2023, Vol. 79. No.3., p.5-32.

45 Pages Posted: 7 Jul 2022 Last revised: 9 Sep 2023

See all articles by Guido Baltussen

Guido Baltussen

Erasmus University Rotterdam (EUR); Northern Trust Corporation - Northern Trust Asset Management

Laurens Swinkels

Erasmus University Rotterdam (EUR); Robeco Asset Management

Bart van Vliet

Erasmus University Rotterdam (EUR); Northern Trust Corporation - Northern Trust Asset Management

Pim van Vliet

Robeco Quantitative Investments

Date Written: July 6, 2022

Abstract

We examine asset class and factor premiums across inflationary regimes. As periods of deflation, high inflation and especially stagflation 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

Baltussen, Guido and Swinkels, Laurens and van Vliet, Bart and van Vliet, Pim, Investing in Deflation, Inflation, and Stagflation Regimes (July 6, 2022). Financial Analysts Journal, 2023, Vol. 79. No.3., p.5-32. , Available at SSRN: https://ssrn.com/abstract=4153468 or http://dx.doi.org/10.2139/ssrn.4153468

Guido Baltussen (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Northern Trust Corporation - Northern Trust Asset Management ( email )

50 South LaSalle Street
Chicago, IL 60603
United States

Laurens Swinkels

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Asset Management ( email )

Rotterdam, 3000
Netherlands
+31 10 224 2470 (Phone)
+31 10 224 2110 (Fax)

Bart Van Vliet

Erasmus University Rotterdam (EUR)

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Northern Trust Corporation - Northern Trust Asset Management ( email )

50 South LaSalle Street
Chicago, IL 60603
United States

Pim Van Vliet

Robeco Quantitative Investments ( email )

Rotterdam, 3011 AG
Netherlands

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