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An inflation-hedging portfolio selection model

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  • Chang-Tesh Hsieh
  • Iskandar Hamwi
  • Tim Hudson

Abstract

This paper suggests an investment strategy which allows an investor to specify the desired return on investment to be equal to the expected rate of inflation plus a certain premium rate, and then helps the investor select those stocks which will provide the greatest chance of meeting that specified investment goal. Copyright International Atlantic Economic Society 2002

Suggested Citation

  • Chang-Tesh Hsieh & Iskandar Hamwi & Tim Hudson, 2002. "An inflation-hedging portfolio selection model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 8(1), pages 20-34, February.
    • Handle: RePEc:kap:iaecre:v:8:y:2002:i:1:p:20-34:10.1007/bf02295560
    DOI: 10.1007/BF02295560
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    References listed on IDEAS

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    1. Nelson, Charles R, 1976. "Inflation and Rates of Return on Common Stocks," Journal of Finance, American Finance Association, vol. 31(2), pages 471-483, May.
    2. Chambers, Donald R. & Carleton, Willard T. & Waldman, Donald W., 1984. "A New Approach to Estimation of the Term Structure of Interest Rates," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(3), pages 233-252, September.
    3. Mark J. Buono, 1989. "The Relationship Between The Variability Of Inflation And Stock Returns: An Empirical Investigation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(4), pages 329-339, December.
    4. Stone, Bernell K., 1974. "Systematic Interest-Rate Risk in a Two-Index Model of Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(5), pages 709-721, November.
    5. Oudet, Bruno A., 1973. "Trefftzs Award: The Variation of the Return on Stocks in Periods of Inflation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 8(2), pages 247-258, March.
    6. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    7. Branch, Ben, 1974. "Common Stock Performance and Inflation: An International Comparison," The Journal of Business, University of Chicago Press, vol. 47(1), pages 48-52, January.
    8. Flannery, Mark J & James, Christopher M, 1984. "The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-1153, September.
    9. Kwan, Clarence C Y, 1984. "Portfolio Analysis Using Single Index, Multi-index, and Constant Correlation Models: A Unified Treatment," Journal of Finance, American Finance Association, vol. 39(5), pages 1469-1483, December.
    10. Schwert, G William, 1981. "The Adjustment of Stock Prices to Information about Inflation," Journal of Finance, American Finance Association, vol. 36(1), pages 15-29, March.
    11. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    12. Hilliard, Jimmy E, 1984. "Hedging Interest Rate Risk with Futures Portfolios under Term Structure Effects," Journal of Finance, American Finance Association, vol. 39(5), pages 1547-1570, December.
    13. Campbell, John Y., 1987. "Stock returns and the term structure," Journal of Financial Economics, Elsevier, vol. 18(2), pages 373-399, June.
    14. Bodie, Zvi, 1976. "Common Stocks as a Hedge against Inflation," Journal of Finance, American Finance Association, vol. 31(2), pages 459-470, May.
    15. Mary Lindahl, 1992. "Minimum variance hedge ratios for stock index futures: Duration and expiration effects," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 12(1), pages 33-53, February.
    16. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-547, August.
    17. Levy, H & Markowtiz, H M, 1979. "Approximating Expected Utility by a Function of Mean and Variance," American Economic Review, American Economic Association, vol. 69(3), pages 308-317, June.
    18. Buono, Mark J, 1989. "The Relationship between the Variability of Inflation and Stock Returns: An Empirical Investigation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(4), pages 329-339, Winter.
    19. Ibbotson, Roger G & Sinquefield, Rex A, 1976. "Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns (1926-1974)," The Journal of Business, University of Chicago Press, vol. 49(1), pages 11-47, January.
    20. Jean C. H. Loo, 1988. "Common Stock Returns, Expected Inflation, And The Rational Expectations Hypothesis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 11(2), pages 165-172, June.
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    Cited by:

    1. Marie Brière & Ombretta Signori, 2011. "Inflation hedging portfolios in different regimes," BIS Papers chapters, in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 139-163, Bank for International Settlements.
    2. Marie Brière & Ombretta Signori, 2012. "Inflation-Hedging Portfolios : Economic Regimes Matter," Post-Print hal-01494498, HAL.
    3. Mădălina - Gabriela Anghel & Liliana (Dincă) Paschia, 2013. "Using The Capm Model To Estimate The Profitability Of A Financial Instrument Portfolio," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(15), pages 1-19.
    4. repec:dau:papers:123456789/9296 is not listed on IDEAS
    5. repec:dau:papers:123456789/7744 is not listed on IDEAS

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