Avoidance of Adverse Impact on Assets from Inflation: Basic Analysis of Multiple Models and Applications
DOI:
https://doi.org/10.61173/1r0yvr05Keywords:
Inflation hedging, Real returns, CAPM, Expected present value, Asset allocationAbstract
This study analyses strategies to protect asset purchasing power under a low-interest, persistentinflation environment. By using market data of China and establishing finance models, the Fisher equation, CAPM and EPV to calculate the real returns from bank deposits, policy-based bonds and equities (illustrated by Guizhou Moutai). Empirical inputs include a 1.28% forecast inflation rate (2025–2030), current deposit rate and bond yields, and historical equity returns (2017–2021). After inflation adjustment, results indicate that deposits offer near-zero real returns (~0.02%), policy-based bonds provide a modest positive real yield (~0.38%), while equities deliver the highest real return (~8.27%), but with substantial volatility and drawdown risk. The study also highlights limitations of standard models in an inflationary background, especially CAPM’s fixed risk-free assumption and EPV’s static discounting, and recommends methodological enhancements to better capture downside risk such as time-varying discount rates, dynamic risk premiums, and stochastic techniques (Monte Carlo simulations, Value-at-Risk). Practically, investors should minimise idle cash, use bonds for preservation and adopt diversified multi-asset strategies that accept calibrated equity exposure to preserve purchasing power.
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