REITs and Inflation: A Long-Run Perspective

Purpose -This paper seeks to shed light on the question whether German real estate investment vehicles provide an effective hedge against inflation. To do so it aims to investigate open-end real estate funds, special funds and real estate stocks. Design/methodology/approach -Traditional approaches as well as cointegration and causality tests are applied to monthly and quarterly index data from 1992:04 to 2009:12 for the subject investment vehicles. Findings -There is strong evidence that real estate returns are almost independent from inflation in the short run. None of the investigated investment vehicles provide a hedge against expected and unexpected inflation at different lags. In contrast, cointegration tests show that real estate stocks, open-end funds and special funds do provide a hedge against inflation in the long term. Likewise, causality tests suggest that real estate performance is influenced by inflation in the long term.Research limitations/implications -The study still could not investigate closed-end funds and G-REITs. Yet, it does capture the most and comprehensive part of the indirect German real estate investment market. Practical implications -Inflation-hedging capabilities are of particular interest in periods of economic instability. Especially institutional investors with large asset portfolios seek to adjust their asset allocation to changing conditions. Originality/value -To date, research papers on the subject of inflation-hedging capabilities of real estate almost exclusively focus on REITs in the USA and in the UK. Research about the German real estate market and alternative investment vehicles is rare -partly due to a lack of transparency over the past -although international investors more and more adhere to the German real estate investment market.

Section: Literature Reviewmentioning

confidence: 90%

Section: Literature Reviewmentioning

confidence: 99%

Inflation‐hedging properties of indirect real estate investments in Germany

Obereiner

Kurzrock

2012

“…In the studies looking at the US REIT market, it was indicated that the macroeconomic variables previously used are interest rates (Chen and Tzang, 1988;McCue and Kling, 1994;Allen et al, 2000), inflation (Chen and Tzang, 1988;Park et al, 1990;Yobaccio et al, 1995;Chan et al, 1990;Chatrath and Liang, 1998;McCue and Kling, 1994;Jirasakuldech and Emekter, 2012;Ewing and Payne, 2005;Liu et al, 2012;Glascock et al, 2002;Simpson et al, 2007;Yunus, 2012), industrial production (McCue and Kling, 1994), GDP (Ewing and Payne, 2005;Li and Lei, 2011;Chang et al, 2011;Yunus, 2012), and money supply (Chang et al, 2011;Jirasakuldech and Emekter, 2012;Ewing and Payne, 2005;Bredin et al, 2007Bredin et al, , 2011Anderson et al, 2012;Yunus, 2012). In contrast, studies looking at the property stock markets employed macroeconomic variables encompassing interest rate (Liow and Yang, 2005;Stevenson et al, 2007), inflation (Liow and Yang, 2005;Yunus, 2012;Lee et al, 2011), industrial production (Lee et al, 2011), GDP (Liow and Yang, 2005;Yunus, 2012), and money supply (Liow and Yang, 2005;Yunus, 2012;Lee et al, 2011;Xu and Yang, 2011).…”

Section: Literature Reviewmentioning

confidence: 99%

Integration between the Asian REIT markets and macroeconomic variables

Loo

Anuar

Ramakrishnan

2016

Purpose – The purpose of this paper is to examine the long-run relationship and short-term linkage between the Asian REIT markets and their respective macroeconomic variables. Design/methodology/approach – The data collected comprised total return REIT Index from Japan, Hong Kong, Singapore, Malaysia, Thailand, Taiwan and South Korea and their macroeconomic variables from the date of availability of the data until December 2014. The macroeconomic variables are either available in monthly or quarterly basis, they will be separately tested with REIT Index respectively to their frequency. All the variables are tested for its stationarity prior to the investigation of their long-run relationship and short-term linkage using Johansen cointegration test and Granger causality test. Findings – The results showed that certain of the emerging REIT markets show a higher degree of integration with macroeconomic variables in the long run. This implies that the emerging REIT markets are more sensitive towards the change in macroeconomic environment in relative to the developed REIT markets. Practical implications – The paper implied that the distinction of each market structure and their unique way of policy implementation. The findings can assists policy makers to understand about the significance of policy implementation on the Asian REIT markets prior to decision making and also for the portfolio management my asset managers. Originality/value – The paper is one of the few attempts at assessing the long-term relationship and short term linkage between the Asian REIT markets and the macroeconomic variables.

“…The results for listed real estate coincide with the empirical evidence in the real estate literature. For instance, Chatrath and Liang (1998) and Ganesan and Chiang (1998), Hoesli et al (2008), and more recently Obereiner and Kurzrock (2012), find evidence of a long-term relationship between listed real estate and inflation. This is further supported by Lee and Lee (2012), who also find a long-run relationship between inflation and developed real estate stock markets, whereas the relationship does not hold for emerging markets (see also Lee et al, 2011).…”

Section: Co-integration and Granger Causality Testsmentioning

confidence: 99%

Inflation hedging and protection characteristics of infrastructure and real estate assets

Wurstbauer

Schäfers

2015

Purpose – Similar to real estate, infrastructure investments are regarded as providing a good inflation hedge and inflation protection. However, the empirical literature on infrastructure and inflation is scarce. Therefore, the purpose of this paper is to investigate the short- and long-term inflation-hedging characteristics, as well as the inflation protection associated with infrastructure and real estate assets. Design/methodology/approach – Based on a unique data set for direct infrastructure performance, a listed infrastructure index, common direct and listed real estate indices, the authors test for short- and long-term inflation-hedging characteristics of these assets in the USA from 1991-2013. The authors employ the traditional Fama and Schwert (1977) framework, as well as Engle and Granger (1987) co-integration tests. Granger causality tests are further conducted, so as to gain insight into the short-run dynamics. Finally, shortfall risk measures are applied to investigate the inflation protection characteristics of the different assets over increasingly long investment horizons. Findings – The empirical results indicate that in the short run, only direct infrastructure provides a partial hedge against inflation. However, co-integration tests suggest that all series have a long-run co-movement with inflation, implying a long-term hedge. The causality tests reveal reverse unidirectional causality – while real estate asset returns are Granger-caused by inflation, infrastructure asset returns seem to cause inflation. These findings further confirm that both assets represent a distinct asset class. Ultimately, direct infrastructure investments exhibit the most desirable inflation protection characteristics among the set of assets. Research limitations/implications – This study only presents results based on a composite direct infrastructure index, as no sub-indices for sub-sectors are available yet. Practical implications – Investors seeking assets that are sensitive to inflation and mitigate inflation risk should consider direct infrastructure investments in their asset allocation strategy. Originality/value – This is the first study to examine the ability of direct infrastructure to assess inflation risk.