1/ US Inflation and Global Asset Returns (Dai, Medhat)
"While average real returns were lower in years with higher inflation for most assets, many of the differences are not statistically reliable, especially among non-bond assets & in more recent times."
papers.ssrn.com/sol3/papers.cf…
"While average real returns were lower in years with higher inflation for most assets, many of the differences are not statistically reliable, especially among non-bond assets & in more recent times."
papers.ssrn.com/sol3/papers.cf…
2/ "Our conclusion that most asset classes have limited inflation-hedging abilities is consistent with the literature. Bodie (1976), Fama & Schwert (1977), & Fama (1981), among others, find that nominal stock returns are negatively related to expected & unexpected U.S. inflation.
3/ "Gultekin (1983) & Beckers (1991), among others, find similar evidence outside the US. Fama & Schwert (1977) also find (i) that nominal returns to government bonds and bills are only positively related to expected inflation and
4/ "(ii) that while nominal private residential real-estate returns are positively related to both expected and unexpected inflation, more than 40% of their variance is left unexplained by the two components of inflation.
5/ "Bekaert and Wang (2010) find limited inflation-hedging abilities for bonds, stocks, real estate, and gold across 45 countries."
6/ "Returns are in U.S. dollars.
"We use a sample’s median inflation to classify low- & high-inflation years. US inflation has been benign over 1991–2020 vs. 1927–1990, which featured deflation (the Great Depression, 1929-1933) as well as double-digit inflation (1940s & 1970s)."
"We use a sample’s median inflation to classify low- & high-inflation years. US inflation has been benign over 1991–2020 vs. 1927–1990, which featured deflation (the Great Depression, 1929-1933) as well as double-digit inflation (1940s & 1970s)."
7/ "All but one asset had positive average real returns in both low- and high-inflation years.
"Most assets had lower avg real returns in high-inflation years. The only positive differences are for energy stocks and the value factor, although neither is statistically reliable.
"Most assets had lower avg real returns in high-inflation years. The only positive differences are for energy stocks and the value factor, although neither is statistically reliable.
8/ "Exhibit 3 repeats the analysis for the most recent 30-year period (1991–2020), which expands the number of assets we study to a total of 30.
"None of the reliably negative differences observed over the long sample in Exhibit 2 remain reliable over the most recent 30 years."
"None of the reliably negative differences observed over the long sample in Exhibit 2 remain reliable over the most recent 30 years."
9/ "Energy stocks and commodities have been much more volatile than inflation in our sample, which casts doubts about their ability to serve as an effective hedge against inflation.
10/ "For example, over 1991– 2020, the standard deviation of inflation was 0.90% per year while the standard deviations of the nominal returns to energy stocks and commodities were 19.02% and 17.52% per year, respectively, or around 20 times as large for either asset."
11/ "Since expected inflation is embedded in asset prices, it is unexpected inflation that erodes real asset values.
"The time-series correlation between actual & expected inflation is 0.66 (t-stat 7.44). Unexpected inflation's σ is 2.75% (1.09%) over 1947–1990 (1991–2020)."
"The time-series correlation between actual & expected inflation is 0.66 (t-stat 7.44). Unexpected inflation's σ is 2.75% (1.09%) over 1947–1990 (1991–2020)."
12/ "The few reliable coefficients and negligible explanatory power means that observed inflation rates—or even perfect foresight of inflation—told investors little about returns.
"Larger coefficients are not necessarily better, as they can be driven by high return volatility."
"Larger coefficients are not necessarily better, as they can be driven by high return volatility."
13/ "For T-bills, the comovement with inflation (especially unexpected inflation) is an appealing attribute for inflation hedging, but investors should keep in mind that T-bills on average delivered low returns that barely kept up with inflation (Exhibits 2 and 3).
14/ "Though energy stocks and commodities showed meaningful co-movement with inflation, it is important not to overlook that more than half of the nominal-return variation was unrelated to inflation. Their nominal returns were roughly 20x as volatile as inflation over 1991-2020."
15/ "Inflation is just one of many aspects to consider for asset allocation. The right mix for growth and hedging purposes ultimately depends on an investor’s goals. The good news is that most of the global assets we study were able to outpace US inflation over the long term."
16/ Rate of Return on Everything
Commodity Futures Risk Premium
Getting to the Core: Inflation Risks Within & Across Asset Classes
Mapping Investable Return Sources to Macro Env.
https://twitter.com/ReformedTrader/status/1259281594281373697
Commodity Futures Risk Premium
https://twitter.com/ReformedTrader/status/1197403201424642048
Getting to the Core: Inflation Risks Within & Across Asset Classes
https://twitter.com/ReformedTrader/status/1383975582027763714
Mapping Investable Return Sources to Macro Env.
https://twitter.com/ReformedTrader/status/1410309893425287171
17/ Best Strategies for Inflationary Times
https://twitter.com/ReformedTrader/status/1379188472750071809
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