The inflation hedging potential of commodities

: a DCC-GARCH approach

Abstract

This thesis seeks to examine the inflation hedging ability of commodities in the US and their impact on an investment portfolio. It also aims to compare its inflation hedging performance to Treasury Inflation-Protected Securities (TIPS). First, a DCC-GARCH model is used to find dynamic conditional correlations between a selection of commodities and inflation. Secondly, a portfolio allocation exercise with a fixed weight allocated towards the commodity and, on the other hand, a Markowitz portfolio allocation is being conducted. The results come to the conclusion, that while some commodities do certainly have positive dynamic conditional correlations with inflation, they do not necessarily perform well in a portfolio setting given their volatility and unpredictability, specifally in times of crisis. However, Gold may indeed be used as an inflation hedge. Gold shows consistent positive correlations with inflation and good performance in a portfolio setting. Gold also outperforms TIPS in terms of real returns.

Date of Award	17 Oct 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Richard Priestley (Supervisor)