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Inflation and portfolio selection

Darko B. Vukovic, Moinak Maiti and Michael Frömmel (UGent)
(2022) FINANCE RESEARCH LETTERS. 50.
Author
Organization
Abstract
This study proposes and tests a portfolio selection model with inflation allocation lines (IAL) for corresponding capital allocation line (CAL) and utilities in several scenarios of crisis. The model is based on Markowitz's mean-variance (MV) theory, with modification of Tobin's portfolio utility function, and Sharpe's (1964) portfolio theory. The model introduces inflation as a significant factor. According to study results, empirically tested with least squares (OLS) and quantile regression models, the study verifies that under conditions of low and moderate inflation the investor chooses an optimal portfolio which generates the highest real returns (including borrowed funds). For the case of severe recession, the investor chooses a minimum variance portfolio.
Keywords
finance, inflation, mean-variance, portfolio, utility, Markowitz, asset allocation

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Citation

Please use this url to cite or link to this publication:

MLA
Vukovic, Darko B., et al. “Inflation and Portfolio Selection.” FINANCE RESEARCH LETTERS, vol. 50, 2022, doi:10.1016/j.frl.2022.103202.
APA
Vukovic, D. B., Maiti, M., & Frömmel, M. (2022). Inflation and portfolio selection. FINANCE RESEARCH LETTERS, 50. https://doi.org/10.1016/j.frl.2022.103202
Chicago author-date
Vukovic, Darko B., Moinak Maiti, and Michael Frömmel. 2022. “Inflation and Portfolio Selection.” FINANCE RESEARCH LETTERS 50. https://doi.org/10.1016/j.frl.2022.103202.
Chicago author-date (all authors)
Vukovic, Darko B., Moinak Maiti, and Michael Frömmel. 2022. “Inflation and Portfolio Selection.” FINANCE RESEARCH LETTERS 50. doi:10.1016/j.frl.2022.103202.
Vancouver
1.
Vukovic DB, Maiti M, Frömmel M. Inflation and portfolio selection. FINANCE RESEARCH LETTERS. 2022;50.
IEEE
[1]
D. B. Vukovic, M. Maiti, and M. Frömmel, “Inflation and portfolio selection,” FINANCE RESEARCH LETTERS, vol. 50, 2022.
@article{8762753,
  abstract     = {{This study proposes and tests a portfolio selection model with inflation allocation lines (IAL) for corresponding capital allocation line (CAL) and utilities in several scenarios of crisis. The model is based on Markowitz's mean-variance (MV) theory, with modification of Tobin's portfolio utility function, and Sharpe's (1964) portfolio theory. The model introduces inflation as a significant factor. According to study results, empirically tested with least squares (OLS) and quantile regression models, the study verifies that under conditions of low and moderate inflation the investor chooses an optimal portfolio which generates the highest real returns (including borrowed funds). For the case of severe recession, the investor chooses a minimum variance portfolio.}},
  articleno    = {{103202}},
  author       = {{Vukovic, Darko B. and Maiti, Moinak and Frömmel, Michael}},
  issn         = {{1544-6123}},
  journal      = {{FINANCE RESEARCH LETTERS}},
  keywords     = {{finance,inflation,mean-variance,portfolio,utility,Markowitz,asset allocation}},
  language     = {{eng}},
  pages        = {{7}},
  title        = {{Inflation and portfolio selection}},
  url          = {{http://doi.org/10.1016/j.frl.2022.103202}},
  volume       = {{50}},
  year         = {{2022}},
}
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