New research reveals that as inflation diminished spending power, many individual investors turned to risky investment behaviors to ease the pinch.
by Michael R. Malone
University of Miami
Traditional economic theory would indicate that individual investors should trend conservative and reduce their risks during times of high inflation, such as the extreme period that lingered globally in the wake of the pandemic.
Yet new research by Alok Kumar, Gabelli Asset Management Chair and finance professor in the University of Miami Patti and Allan Herbert Business School, reveal a contradictory trend—one with surprising and potentially disruptive implications for the economy.
“What we’re seeing in financial markets is not inflation hedging but pure speculation and gambling as people are trying to compensate for the potential loss in purchasing power,” Kumar said. “People don’t generally think—and traditional finance and economic theory doesn’t perceive—that gambling is going to affect prices. But the observed impact of this gambling channel is so strong that prices can move up and down.”