Infrastructure: Real Assets and Real Returns

Ron Bird, Harry Liem and Susan Thorp

No 11, Working Paper Series from The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney

Abstract: Little empirical work has been done on the return properties of infrastructure as an asset class despite increased allocations by institutional investors. Managers claim infrastructure investments offer real return benefits via a combination of monopolistic and defensive assets. We build a robust factor model of infrastructure returns and estimate the model using U.S. and Australian infrastructure and utility data. We find evidence of excess returns and inflation hedging, but not of defensive characteristics during equity market downturns. We also compare the performance of regulated infrastructure assets to option-based models designed to synthetically replicate infrastructure asset returns, and identify the regulatory risk premium (the premium for government regulation of infrastructure investments). We find that the returns from infrastructure have outperformed option-based replicating strategies over the period from 1995-2009 in Australia, for historical reasons. Finally, we suggest how improved defensive and inflation hedging characteristics can be obtained using a combination of inflation linked bonds and covered call strategies.

Keywords: inflation hedging; regulatory risk premium; infrastructure assets (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2011-09-01
New Economics Papers: this item is included in nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Infrastructure: Real Assets and Real Returns (2014)
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