Inflation is considered as a leading macroeconomic indicator, which might create substantial distortions in financial statements, future earnings, and overall performance of securities in the financial market. An inflation-hedging ability of an asset offers protection against inflation, which eliminates or at least reduces the uncertainty about the future real returns. Real assets like real estate, timberland, and farmland have been regarded as good inflation hedges, whereas financial assets like common stocks and bonds are considered as perverse hedges against inflation. Using the generalized Capital Asset Pricing Model (CAPM) to account for inflation, this study evaluates the inflation-hedging ability of several real assets. Consistent with the findings of previous studies, this study concludes that private-equity assets offer hedges against inflation to some extent, but stocks are found to be inferior hedges against inflation.


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