The Inflation-Hedging Properties of Risk Assets: The Case of REITs

Elizabeth Yobaccio · Jack H. Rubens · David C. Ketcham

51 citations0/0 files storedJournal of Real Estate Research

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Financial Markets and Investment Strategies Housing Market and Economics Market Dynamics and Volatility

Abstract

This study examines the inflation-hedging abilities of REITs over the period 1972:2-1992:12 to determine whether REITs act as a hedge against expected and/or unexpected inflation. The time period used in this study is substantially longer than in earlier studies. A model of real estate returns is derived that has components for expected and unexpected returns and allows for variation in the real return on risky assets. The results indicate that REITs provide some hedging capability against expected inflation, but act as perverse hedges against unexpected inflation. These results are robust with respect to time period studied, measure of expected inflation and proxy for the market portfolio, indicating that the apparent perverse hedging property of real estate investments is not due to methodological problems.

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References

1977Asset returns and inflation 2021Short- Term Interest Rates as Predictors of Inflation 1976COMMON STOCKS AS A HEDGE AGAINST INFLATION 1939The Theory of Investment Value, by John Burr Williams 1976INFLATION AND RATES OF RETURN ON COMMON STOCKS 1991Smoothing in appraisal-based returns 2016Short-Term Interest Rates as Predictors of Inflation: On Testing the Hypothesis that the Real Rate of Interest is Constant 1990Risk and Return on Real Estate: Evidence from Equity REITs

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