Inflation Hedging Properties of Different Asset Classes in Malaysia

Abstract

Manuscript type: Research paper Research aims: The objective of this study is to examine the inflation hedging properties of various asset classes (stock, gold, real estate, Treasury bond and Treasury bill) in the Malaysian context. Design/Methodology/Approach: This is an empirical analysis using quarterly data from the period of 1980 to 2016. The Autoregressive Distributed Lag (ARDL) bounds cointegration model is used for testing the long-run relationship while the error correction model (ECM) is used for testing the short-run dynamics. Research findings: Our results show that stocks and government bonds in Malaysia can provide a complete hedge against inflation in the long-run while real estate shows partial hedging evidence. Gold and Treasury bills, however, are not inflation hedges. For the shortrun, stocks, gold and real estate show evidence of rapid adjustment to changes in inflation while government securities indicate a mild adjustment. Theoretical contributions/Originality: First, this study provides new evidence on inflation hedges from the perspective of an emerging market. Second, this study uses the ARDL and ECM approach to study the long-run and short-run dynamics of asset returns and inflation. This is in contrast to many previous studies that mainly used the Ordinary Least-Squares (OLS) analysis. Third, this study is important for the Malaysian market because previous studies in

Investments in Bonds, Stocks, Gold and Real Estate as a Hedge Against Inflation

“…The results obtained contradict some studies (e.g. : Fama, Schwert, 1977;Lee, Isa, 2019;Choi, Shin, 2022). However, as noted by researchers, different research methods may produce different results (Bond, Seiler, 1998;Arnold, Auer, 2015;Aye, Chang, Gupta, 2016).…”

“…For example, cointegration tested by the Engle-Granger test did not allow such conclusions to be drawn. Lee and Isa (2019) Trojanek (2007) analysed the relationship of residential real estate prices in Poznan between 1996 and 2004 by examining the relationship in relation to expected and unexpected inflation. The research showed that real estate can effectively hedge capital against inflation.…”

Residential Real Estate as a Potential Hedge of Capital Against Inflation

“…The study was conducted from Q1 1999 to Q4 2015, resulting in a total of 68 observations. The Malaysian market was also studied by Lee and Isa (2019) however extending their study to other asset classes such as stocks, bonds and gold. They obtained results that, while stocks and government bonds provide a hedge against inflation, real estate provides only a partial hedge.…”

Financial Efficiency and Investor Behavior on the European Real Estate Market in the Rising Inflation Environment

“…Shifting the focus to Hong Kong's property market, Lee (2013) demonstrated the cointegration of residential property market returns and inflation between 1980 and 2008, with changes in inflation preceding changes in property returns. The analysis of the Malaysian market indicated that real estate provides only a partial hedge against inflation and it is more advisable to invest in stocks and government bonds (Lee et al, 2019).…”