n Management Dynamics : Journal of the Southern African Institute for Management Scientists - The effect of inflation on investment returns and portfolio asset allocation in South Africa




While certain assets classes have done exceedingly well over the last few years, South African retirement funds yielded below-par investment performance. The important question, therefore, is whether fund managers have been weighing the different asset classes in their portfolio compositions optimally and have been sufficiently able to read the inflationary signs present in the market.

This study attempts to shed some light on the above. The theoretical return of different asset classes, with specific emphasis on cash and property, is considered during three different inflationary eras in South Africa. The degree of convergence of asset returns due to investor substitution among asset classes over the long term is also considered. The return and the risk of property investments in South Africa are compared empirically to the other asset classes from 1980 to 2002. The results indicate that cash outperformed the other asset classes on a risk-adjusted basis.


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