Journal of Finance and Investment Analysis

Inflation Risk and Asset Class Performance

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  • Abstract

    This paper investigates the historical relationship between inflation rates and asset class returns in order to give perspective on which classes perform best when inflation rates are high. This is important to investors as the monetary base has tripled since July 2008, which may be “sowing the seeds” for future above normal inflation levels. Several Federal Open Market Committee members have expressed concern about monetary policy recently and believe that the Federal Reserve needs to focus more on inflation and less on economic recovery. Our research suggests that gold is not only an excellent inflation hedge, but it also improves Sharpe ratios when added to traditional stock/bond portfolios.