—The paper attempts to provide a possible hedging strategy against reduction in equity valuations due to inflation, using commodity futures. Commodity futures for four commodities namely pepper, steel, wheat and mustard seed are used along with sector equity indices of National Stock Exchange (NSE), India to determine plausible benefits of hedging equity risks with commodity futures. The effectiveness of the hedged portfolios is tested using standard statistical methods. The risk and return of a portfolio hedged with commodity future is compared with an equity only portfolio. The work thus provides an alternative hedging strategy against inflation for investors with primary investments in equities.
—Commodity futures, hedging, inflation risk.
A. Joshi is with Indian Institute of Management, Shillong (email: anurag.joshi2 @gmail.com).
Cite: Anurag Joshi, "Inflation Risk Hedging Strategy for Equities using Commodity Futures," International Journal of Trade, Economics and Finance vol. 3, no. 2, pp. 78-81 , 2012.