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- Title
The Inflation Hedging Characteristics of US and UK Investments: A Multi-Factor Error Correction Approach.
- Authors
Hoesli, Martin; Lizieri, Colin; MacGregor, Bryan
- Abstract
Historic analysis of the inflation hedging properties of stocks has produced anomalous results, with stocks often appearing to offer a perverse hedge. This has been attributed to the impact of real and monetary shocks to the economy, which influence both inflation and asset returns. It has been argued that real estate should provide a better hedge: however, empirical results have been mixed. This paper explores the relationship between commercial real estate returns and economic, fiscal and monetary factors and inflation for US and UK markets. Comparative analysis of general equity and small capitalization stock returns is carried out with inflation divided into expected and unexpected components. The analyses are undertaken using an error correction approach. In the long run, once real and monetary variables are included, asset returns are positively linked to anticipated inflation but not to inflation shocks. Adjustment processes are, however, gradual and not within period. Real estate returns, particularly private market returns, exhibit characteristics that differ from those of stocks.
- Subjects
UNITED States; UNITED Kingdom; ECONOMIC forecasting; PRICE inflation; COMMERCIAL real estate; REAL property; INDUSTRIAL real estate; CAPITAL structure; SMALL capitalization stocks; REAL estate investment trusts
- Publication
Journal of Real Estate Finance & Economics, 2008, Vol 36, Issue 2, p183
- ISSN
0895-5638
- Publication type
Article
- DOI
10.1007/s11146-007-9062-6