Inflation hedging: a comparative wavelet quantile correlation analysis of real estate and alternative assets

Aya Nasreddine and Yasmine Essafi Zouari

Journal of Property Investment & Finance, 2024, vol. 43, issue 1, 66-82

Abstract: Purpose - Conducting an analysis spanning from 2000 to 2023, this research evaluates the effectiveness of real estate assets in hedging against global and energy inflation, benchmarked against other compelling investment options such as oil, gold, silver and stocks. Design/methodology/approach - This study employs the wavelet quantile correlation (WQC) methodology. The latter sheds light on dynamic market interactions by scrutinising dependency structures across multiple time scales and also by capturing tail dependence. The adaptability of the wavelet transform, across a spectrum of frequencies, emerges as an indispensable tool for studying time series while also unravelling relationships among variables across diverse quantiles. Findings - The findings reveal that the response to inflationary pressures is contingent upon the asset class, investment horizon and type of inflation under consideration. While precious metals demonstrate effectiveness over short-term horizons, French-listed real estate exhibits compelling inflation-hedging characteristics as the investment horizon extends. Oil emerges as an unequivocal hedge against both global and energy inflation. Practical implications - To counteract the effects of inflation, investors and households may feel compelled to refine their investment strategies, opting to bolster their portfolios with instruments proven to serve as reliable safeguards against inflation, as indicated by this study. Originality/value - In conjunction with a surge in inflationary pressures, this study delves into the hedging capabilities of assets, exploring their efficacy not only across short- and long-term investment horizons but also within diverse scenarios characterized by fluctuating levels of global and energy-related inflation. To the best of our knowledge, no previous article employed the WQC technique to evaluate the inflation-hedging nexus.

Keywords: Inflation hedging; Real estate; REITs; Precious metals; Oil; Wavelet; Quantile correlation; Investment horizon; G11; G15; E31 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jpifpp:jpif-04-2024-0047

DOI: 10.1108/JPIF-04-2024-0047

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