Could u explain this statement? “an asset with a +ve sensitivity to inflation factor would have a lower required return than one with a negative sensitivity to inflation,due to its unique ability to act as an hedge”-wiley Guys what does this mean? Isnt it supposed to be the other way round?
Positive sensitivity to inflation means that when inflation rises, the asset price also rises. Negative sensitivity is the contrary case. Therefore, the first asset has a higher price than the second one when inflation rises, indicating a lower required return.
But isnt required return supposed to increase witj inflation? Could u state this in formula terms. I am clearly missing something here.