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Alternative Inflation Hedging Portfolio Strategies: Going Forward Under Immoderate Macroeconomics

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  • Fulli-Lemaire, Nicolas

Abstract

Gone are the days when inflation fears had receded under years of 'Great Moderation' in macroeconomics. The US subprime financial crisis, the ensuing 'Great Recession' and the sovereign debt scares that spread throughout much of the industrialized world brought about a new order characterized by higher inflation volatility, severe commodity price shocks and uncertainty over sovereign bond creditworthiness to name just a few. All of which tend to put in jeopardy both conventional inflation protected strategies and nominal unhedged ones: from reduced issues of linkers to negative long-term real rates, they call into question the viability of current strategies. This paper investigates those game changing events and their asset liability management consequences for retail and institutional investors. Three alternative ways to achieve real value protection are proposed.

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  • Fulli-Lemaire, Nicolas, 2012. "Alternative Inflation Hedging Portfolio Strategies: Going Forward Under Immoderate Macroeconomics," MPRA Paper 42854, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:42854
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    File URL: https://mpra.ub.uni-muenchen.de/46488/1/MPRA_paper_46488.pdf
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    References listed on IDEAS

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    1. D’Amico, Stefania & Kim, Don H. & Wei, Min, 2018. "Tips from TIPS: The Informational Content of Treasury Inflation-Protected Security Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(1), pages 395-436, February.
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    3. Baumeister, Christiane & Benati, Luca, 2010. "Unconventional monetary policy and the great recession - Estimating the impact of a compression in the yield spread at the zero lower bound," Working Paper Series 1258, European Central Bank.
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    7. Fulli-Lemaire, Nicolas & Palidda, Ernesto, 2012. "Swapping Headline for Core Inflation: An Asset Liability Management Approach," MPRA Paper 42853, University Library of Munich, Germany, revised 16 Nov 2012.
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    11. Fulli-Lemaire, Nicolas, 2012. "Allocating Commodities in Inflation Hedging Portfolios: A Core Driven Global Macro Strategy," MPRA Paper 42852, University Library of Munich, Germany, revised 15 Oct 2012.
    12. Juan Angel Garcia & Adrian van Rixtel, 2007. "Inflation-linked bonds from a central bank perspective," Occasional Papers 0705, Banco de España.
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    17. Fulli-Lemaire, Nicolas, 2012. "A Dynamic Inflation Hedging Trading Strategy Using a CPPI," MPRA Paper 42851, University Library of Munich, Germany, revised 13 Nov 2012.
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    More about this item

    Keywords

    inflation hedging; portfolio allocation; alternative investment; commodities; real rates; core Inflation; global macro; inflation pass-through; strategic allocation; portfolio insurance; Great Recession;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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