Investments in Bonds, Stocks, Gold and Real Estate as a Hedge Against Inflation

Rafal Wolski

doi:10.18778/0208-6018.360.01

Authors

Rafal Wolski Chair of Capital Market and Investments, University of Lodz, Lodz, Poland https://orcid.org/0000-0002-4001-2415

DOI:

https://doi.org/10.18778/0208-6018.360.01

Keywords:

inflation hedging, gold, stocks, bonds, real estate, Poland

Abstract

In times of accelerating inflation, financial instruments that protect capital against loss of value are becoming increasingly important. Therefore, an open question remains as to what to invest in to, if not outstrip, at least keep up with the inflation rate in the case of return on investments. This raises the question of whether there are such opportunities in the market. However, according to some authors, this type of analysis is not easy and simple econometric methods are not able to show the appropriate dependencies. An example is real estate investment, which, especially in the short term, may not be a suitable inflation hedge.

The purpose of the study is to determine whether investments in the Polish capital market are able to protect capital from depreciation due to inflation.

The study began with the analysis of distributions, stationarity of returns and correlation of successive investments and the CPI inflation rate, ending with cointegration analysis using the Engle–Granger test. The analysis was performed from the first quarter of 2009 to the fourth quarter of 2021. The following indices were used for the study: the TBSPIndex from the bond market, the WIG from the stock market, gold prices in PLN, the NBP hedonic index of real estate prices in seven largest Polish cities and CPI inflation rates published by Statistics Poland (GUS).

The analysis led to a negative verification of the research hypothesis, as it could not be proved that the analysed indices and prices are related to the level of inflation.

The study fills a gap in the Polish market for analysis of capital protection against inflation. The research concerns only the Polish market, however this issue has not been discussed for years in mature economies either.

Downloads

Download data is not yet available.

References

Arnold S., Auer B.R. (2015), What do scientists know about inflation hedging?, “The North American Journal of Economics and Finance”, no. 34, pp. 187–214.
Google Scholar DOI: https://doi.org/10.1016/j.najef.2015.08.005

Aye G.C., Chang T., Gupta R. (2016), Is gold an inflation hedge Evidence from an interrupted Markov switching cointegration model, “Resources Policy”, no. 48, pp. 77–84.
Google Scholar DOI: https://doi.org/10.1016/j.resourpol.2016.02.011

Bird P.J.W.N. (1984), Commodities as a hedge against inflation, “Applied Economics”, vol. 16(6), pp. 855, https://doi.org/10.1080/00036848400000055
Google Scholar DOI: https://doi.org/10.1080/00036848400000055

Bond M.T., Seiler M.J. (1998), Real Estate Returns and Inflation: An Added Variable Approach, “The Journal of Real Estate Research”, vol. 15(3), pp. 327–338, http://www.jstor.org/stable/24886883 [accessed: 22.05.2022].
Google Scholar DOI: https://doi.org/10.1080/10835547.1998.12090932

Choi S., Shin J. (2022), Bitcoin: An inflation hedge but not a safe haven, “Finance Research Letters”, no. 46, 102379, https://doi.org/10.1016/j.frl.2021.102379
Google Scholar DOI: https://doi.org/10.1016/j.frl.2021.102379

Diaz J., Westig D. (2020), “Quarterly Review of European Mortgage Markets”, no. Q4, https://hypo.org/app/uploads/sites/3/2021/05/EMF-Quarterly-Review-Q4-2020.pdf [accessed: 14.04.2022].
Google Scholar

Engle R.F., Granger C.W. (1987), Co integration and error correction: representation, estimation, and testing, “Econometrica: Journal of the Econometric Society”, pp. 251–276.
Google Scholar DOI: https://doi.org/10.2307/1913236

Eurostat, https://ec.europa.eu/ [accessed: 23.06.2022].
Google Scholar

Fama E.F., Schwert G.W. (1977), Asset returns and inflation, “Journal of Financial Economics”, vol. 5(2), pp. 115–146.
Google Scholar DOI: https://doi.org/10.1016/0304-405X(77)90014-9

Fang W.S., Wang K.M., Nguyen T.B.T. (2008), Is real estate really an inflation hedge?, “Evidence from Taiwan. Asian Economic Journal”, vol. 22(2), pp. 209–224.
Google Scholar DOI: https://doi.org/10.1111/j.1467-8381.2008.00275.x

Fisher I . (1930), The theory of interest, The Macmillan Company, New York.
Google Scholar

Fiszeder P., Rowiński S. (2012), Modelowanie zależności pomiędzy wybranymi procesami makroekonomicznymi a warszawskim indeksem giełdowym, “Ekonomia i Prawo”, vol. 10(3), pp. 153–167.
Google Scholar DOI: https://doi.org/10.12775/EiP.2012.029

Fogler H.R. (1984), 20% in real estate: Can theory justify it?, “Journal of Portfolio Management”, vol. 10(2), pp. 6–13, https://doi.org/10.3905/jpm.1984.6
Google Scholar DOI: https://doi.org/10.3905/jpm.1984.6

GPW, https://gpw.pl/ [accessed: 1.06.2022].
Google Scholar

GUS, https://gus.gov.pl/ [accessed: 1.06.2022].
Google Scholar

Kasprzak Czelej A. (2015), Inwestycje w złoto jako zabezpieczenie przed inflacją w Polsce, “Annales Universitatis Mariae Curie Skłodowska. Sectio H Oeconomia”, vol. 49(4), pp. 205–214, https://doi.org/10.17951/h.2015.49.4.205
Google Scholar DOI: https://doi.org/10.17951/h.2015.49.4.205

Lee C., Park S., Jeong J. (2016), Comprehensive comparison of normality tests: Empirical study using many different types of data, “Journal of the Korean Data and Information Science Society. Korean Data and Information Science Society”, September 30, https://doi.org/10.7465/jkdi.2016.27.5.1399
Google Scholar DOI: https://doi.org/10.7465/jkdi.2016.27.5.1399

Lee H.K.N. (2013), A Cointegration Analysis of Inflation and Real Estate Returns, “The Journal of Real Estate Portfolio Management”, vol. 19(3), pp. 207–224, http://www.jstor.org/stable/24885540 [accessed: 12.05.2022].
Google Scholar DOI: https://doi.org/10.1080/10835547.2013.12089956

Lee S.P., Isa M. (2019), Inflation Hedging Properties of Different Asset Classes in Malaysia, “Asian Journal of Business and Accounting”, vol. 12(1), pp. 229–256, https://doi.org/10.22452/ajba.vol12no1.8
Google Scholar DOI: https://doi.org/10.22452/ajba.vol12no1.8

Lintner J. (1975), Inflation and security returns, “The Journal of Finance”, vol. 30(2), pp. 259–280.
Google Scholar DOI: https://doi.org/10.1111/j.1540-6261.1975.tb01809.x

Markowitz H.M. (1952), Portfolio selection, “Journal of Finance”, no. 7, pp. 77–91.
Google Scholar DOI: https://doi.org/10.1111/j.1540-6261.1952.tb01525.x

NBP, https://nbp.pl/ [accessed: 1.06.2022].
Google Scholar

Obereiner D., Kurzrock B.M. (2012), Inflation‐hedging properties of indirect real estate investments in Germany, “Journal of Property Investment & Finance”, vol. 30(3), pp. 218–240.
Google Scholar DOI: https://doi.org/10.1108/14635781211223806

Salisu A.A., Raheem I.D., Ndako U.B. (2020), The inflation hedging properties of gold, stocks and real estate: A comparative analysis, “Resources Policy”, no. 66, 101605.
Google Scholar DOI: https://doi.org/10.1016/j.resourpol.2020.101605

Sharpe W.F. (1967), Portfolio analysis, “Journal of Financial and Quantitative Analysis”, no. 2(2), pp. 76–84.
Google Scholar DOI: https://doi.org/10.2307/2329895

Spearman C. (1987), The proof and measurement of association between two things, “The American Journal of Psychology”, vol. 100(3/4), pp. 441–471.
Google Scholar DOI: https://doi.org/10.2307/1422689

Steinbach M.C. (2001), Markowitz revisited: Mean variance models in financial portfolio analysis, “SIAM Review”, vol. 43(1), pp. 31–85.
Google Scholar DOI: https://doi.org/10.1137/S0036144500376650

Stevenson S., Murray L. (1999), An Examination of the Inflation Hedging Ability of Irish Real Estate, “The Journal of Real Estate Portfolio Management”, vol. 5(1), pp. 59–69.
Google Scholar DOI: https://doi.org/10.1080/10835547.1999.12089569

Stooq.pl, https://stooq.pl/ [accessed: 1.06.2022].
Google Scholar

Taderera M., Akinsomi O. (2020), Is commercial real estate a good hedge against inflation? Evidence from South Africa, “Research in International Business and Finance”, no. 51, 101096, https://doi.org/10.1016/j.ribaf.2019.101096
Google Scholar DOI: https://doi.org/10.1016/j.ribaf.2019.101096

Trojanek R. (2007), Inwestycje w lokale mieszkalne jako efektywne zabezpieczenie przed inflacją na przykładzie Poznania w latach 1996–2004, [in:] K. Dziworska, T. Geurts, P. Lorens (eds.), Strategie inwestowania w nieruchomości, Biblioteka Urbanisty, Wydawnictwo Urbanista, Warszawa, pp. 191–200.
Google Scholar

Van Hoang T.H., Lahiani A., Heller D. (2016), Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach, “Economic Modelling”, no. 54, pp. 54–66.
Google Scholar DOI: https://doi.org/10.1016/j.econmod.2015.12.013