On the systemic nature of global inflation, its association with equity markets and financial portfolio implications

Nick James and Kevin Chin

Physica A: Statistical Mechanics and its Applications, 2022, vol. 593, issue C

Abstract: This paper uses new and recently introduced mathematical techniques to undertake a data-driven study on the systemic nature of global inflation. We start by investigating country CPI inflation over the past 70 years. There, we highlight the systemic nature of global inflation with a judicious application of eigenvalue analysis and determine which countries exhibit most “centrality” with an inner-product based optimization method. We then turn to inflationary impacts on financial market securities, where we explore country equity indices’ equity robustness and the varied performance of equity sectors during periods of significant inflationary pressure. Finally, we implement a time-varying portfolio optimization to determine which asset classes were most beneficial in increasing portfolio Sharpe ratio when an investor must hold a core (and constant) allocation to equities.

Keywords: Nonlinear time series analysis; Nonlinear financial market dynamics; Inflation; Clustering; Portfolio optimization; Evolutionary correlation (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:593:y:2022:i:c:s0378437122000279

DOI: 10.1016/j.physa.2022.126895

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