The Impact of Inflation Hedge Assets on Portfolio Optimizations for US and Canadian Investors

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The research is based on “Gold: Inflation Hedge and Long-Term Strategic Asset.” paper by Dempster and Artigas (2010). Authors used basic portfolio for the US investor, which includes Corporate Bonds, US Treasuries, Equity US and Equity Ex-US. By adding, alternatively, the four potential inflation-hedges, researchers showed Gold as the most appropriate Long-Term Strategic Asset. In our research, we constructed basic investment portfolio for US and Canadian investors. For each case, alternatively, four potential Inflation Hedges, which are Gold, S&P GSCI Index, REITs and TIPS, were added to the basic portfolio. The optimization results are based on the post-crisis period from 2009 to 2016. The final results for the US suggest that Gold should be considered as a strong long-term strategic asset. For the Canadian case, Gold, and S&P GSCI tend to be appropriate long-term strategic assets, which should be added to the basic portfolio. Canadian REITs get allocation under base case assumptions but sensitivity analysis indicates that the results are not robust.
Master of Science in Finance Program - Simon Fraser University
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