Financial assets against inflation: Capturing the hedging properties of gold, housing prices, and equities

Abstract

In this study, we employed a developed Fractional Cointegrating Vector Autoregressive (FCVAR) model to analyze the relationship between three different securities, i.e., housing prices, S&P500 stock prices and gold, and inflation rate, to determine the hedging properties of each type of asset against inflation shocks. Our analyses covered seven decades; ranging from January 1953 to January 2023. Our results suggested that housing prices and S&P500 performed partially against inflation and gold did not have hedging properties when attending to the full sample. Accounting for structural breaks, we discovered that these results changed. We found that housing prices and the S&P500 showed a superior hedging performance against inflation since the second regime. On the other hand, when we studied the behavior of gold, this security showed the inverse results, i.e., it showed no hedging performance in the second regime. Finally, these results were important for an optimal investment strategy, risk diversification, and monetarism.

Keywords

• fractional cointegration
• structural breaks
• security
• hedging
• inflation