Alternative Investments: Inflation Hedger or Mean-Variance Efficient?

ALTERNATIVE INVESTMENTS REVISIT: APPRAISAL SMOOTHING BIAS, INFLATION HEDGING AND MEAN-VARIANCE EFFICIENCY

Journal of International Finance and Economics ◽

10.18374/jife-15-3.9 ◽

2015 ◽

Vol 15 (3) ◽

pp. 81-94

Author(s):

Ghulame Rubbaniy ◽

Muhammad Murtaza ◽

Khurram Shahzad ◽

Abida Perveen

Keyword(s):

Alternative Investments ◽

Mean Variance ◽

Inflation Hedging ◽

Appraisal Smoothing

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Analysis on the Risk Return Profile of Alternative Assets Under Reference Portfolio Concept

Journal of Derivatives and Quantitative Studies ◽

10.1108/jdqs-02-2019-b0003 ◽

2019 ◽

Vol 27 (2) ◽

pp. 193-209

Author(s):

Su Jin Lee ◽

Jin Wan Cho ◽

Jae Hyun Lee

Keyword(s):

Asset Allocation ◽

Opportunity Costs ◽

Strategic Asset Allocation ◽

Alternative Investments ◽

Risk Return ◽

Benchmark Portfolio ◽

The Mean ◽

Asset Classes ◽

Relationship Of ◽

Mean Variance

This paper provides the methodology of estimating the risk-return relationship of alternative asset investments within the mean-variance framework. While conducting strategic asset allocation, most of the institutional investors do not take into account the risk-return relationship of alternative assets, or use arbitrary policy numbers that do not properly reflect the characteristics of alternative assets. This paper borrows the concept of reference portfolio in developing the methodology of estimating the risk-return relationship of alternative investments. The reference portfolio is the benchmark portfolio used in strategic asset allocation by pension funds. This can serve as the opportunity costs of alternative investments. We use the realized IRR’s from actual investments, and estimate the risk-return characteristics of alternative investments. We find that by properly estimating the mapping relationship between the reference portfolio and alternative asset classes, we can incorporate the risk-return profile of these non-market assets within the mean-variance framework together with the other traditional asset classes.

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