Inflation Tracking Portfolios / Christopher T. Downing, Francis A. Longstaff, Michael A. Rierson.

By:

Downing, Christopher T

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w18135.Publication details: Cambridge, Mass. National Bureau of Economic Research 2012.Description: 1 online resource: illustrations (black and white)Subject(s):

G11 - Portfolio Choice • Investment Decisions

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Abstract: We propose a new approach to constructing inflation tracking portfolios. The key to this approach is the insight that asset returns track expected inflation far better than they track current realized inflation. Thus, we can construct portfolios that track next month's inflation much more closely than they track this month's inflation. We show this staggered hedging approach can eliminate nearly 90 percent of the tracking error of more conventional inflation hedging strategies. We also find that long-short positions in equities play a dominant role in the effective hedging of inflation risk over extended horizons. These results suggest that the goal of protecting portfolios against inflation may be more feasible that is commonly believed.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w18135 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

June 2012.

We propose a new approach to constructing inflation tracking portfolios. The key to this approach is the insight that asset returns track expected inflation far better than they track current realized inflation. Thus, we can construct portfolios that track next month's inflation much more closely than they track this month's inflation. We show this staggered hedging approach can eliminate nearly 90 percent of the tracking error of more conventional inflation hedging strategies. We also find that long-short positions in equities play a dominant role in the effective hedging of inflation risk over extended horizons. These results suggest that the goal of protecting portfolios against inflation may be more feasible that is commonly believed.