Allocating commodities in inflation hedging portfolios: a core driven global macro strategy

Fulli-Lemaire, Nicolas (2012): Allocating commodities in inflation hedging portfolios: a core driven global macro strategy.

Abstract

Recent academic studies have shown that since the mid-nineties, the pass-through of exogenous oil shocks into headline inflation has been increasing while the pass through into core inflation seems to have ceased. This paper explores the implications in terms of commodity allocation for inflation hedging portfolios these recent works have paved the way for. We proceed by first evidencing a link between the headline to core inflation spread and tradable commodities. We subsequently intend to exploit this link in two ways: firstly by devising an efficient strategic allocation using core inflation forecasts to determine the commodities’ natural weight in the portfolio as dictated by our macro approach. And secondly by testing a tactical allocation strategy which would time the pass-through cycle to dynamically determine the optimal share of commodities in the allocation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation Hedging, Portfolio Allocation, Commodities, Core Inflation, Global Macro, Inflation Passthrough, Arbitrage Pricing, Strategic Allocation, Tactical Allocation
• Subjects: G - Financial Economics > G1 - General Financial Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

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