The inflation-hedging ability of individual shares: Evidence from the Johannesburg Stock Exchange (JS']JSE)

The erosion of purchasing power due to inflation is a source of concern for investors who invest in stocks over long investment horizons. This study examines the inflation-hedging abilities of stocks for South Africa over three different investment periods for both individual stock and for different sectors based on their inflation betas. The results indicate that inflation-hedging betas did not produce conclusive evidence of hedging benefits. A 12-month rolling regression of three long-term portfolios with high, close to zero and low betas revealed that the zero beta portfolio yielded the best average geometric real return over the 2004 to 2015 period. Measuring the inflation-hedging benefits of individual stocks and sector portfolios based on performance measures such as real return, reliability and risk-adjusted return was more conclusive. The results also suggest that some sectors such as technology, consumer staples and healthcare sectors exhibited better inflation-hedging possibilities than other sectors during unstable inflationary conditions.