PT  - JOURNAL ARTICLE
AU  - Noël Amenc
AU  - Lionel Martellini
AU  - Volker Ziemann
TI  - Inflation-Hedging Properties of Real Assets and Implications for Asset–Liability Management Decisions
AID  - 10.3905/JPM.2009.35.4.094
DP  - 2009 Jul 31
TA  - The Journal of Portfolio Management
PG  - 94--110
VI  - 35
IP  - 4
4099  - https://pm-research.com/content/35/4/94.short
4100  - https://pm-research.com/content/35/4/94.full
AB  - Recent increases in inflation uncertainty have increased investor awareness of the need to hedge against unexpected changes in price levels. Given that the capacity of the inflation-linked securities market is not sufficient to meet the collective demand of institutional and private investors and that the OTC inflation derivatives market suffers from a perceived increase in counterparty risk, investors are now turning to other asset classes to seek inflation protection. Using a vector error correction model that explicitly distinguishes between short-term and long-term dynamics in the joint distribution of asset returns and inflation, the authors show that real estate and commodities have particularly attractive inflation-hedging properties over long horizons and that these properties justify the introduction of these asset classes into pension fund liability-hedging portfolios. These results suggest that novel forms of liability-driven investment solutions, including commodities and real estate in addition to inflation-linked securities, can be designed to decrease the cost of inflation insurance for long-horizon investors.TOPICS: Pension funds, commodities, VAR and use of alternative risk measures of trading risk