Abstract
Previous research has shown that returns (and variability of returns) to traditional asset classes are significantly influenced by Federal Reserve monetary policy. Unfortunately, while providing evidence that returns from traditional asset classes are higher and less volatile during expansive monetary policy periods, previous research has not identified asset classes that have attractive return patterns in restrictive monetary policy periods. This analysis extends that research into broad alternative investment classes including several real estate and commodity indexes. The results indicate that commodity futures provide attractive return patterns while real estate offers little diversification benefits for investors with traditional stock and bond portfolios. Both commodity and real estate volatility patterns are found to be similar to traditional asset classes—higher volatility in restrictive monetary policy periods.
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