"Simplified Offensive, Defensive and Risk Mode Identification Momentum Strategy" and "Size Effect-based Hybrid Asset Allocation Strategy" describe strategies that each month hold offensive (defensive) assets when average return on iShares TIPS Bond ETF (TIP) over the past 1, 3, 6 and 12 months is positive (negative). Is past return of TIP, which impounds investor expectations for U.S. inflation, a reliable and useful indicator of future asset class returns? To investigate, we relate TIP returns to future returns for each of the following exchange-traded fund (ETF) asset class proxies:
- Equities:
- Bonds:
- Real assets:
We consider both linear correlation and non-linear ranking tests. We look at TIP returns over the past 1, 3, 6 and 12 months separately, and as an average of these past returns (TIP 13612). We look at correlation variability and perform a simple test of economic value. Using monthly dividend-adjusted returns for TIP and the above asset class proxies as available during December 2003 (limited by TIP) through January 2026, we find that:
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