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Asymmetric Inflation Hedge of Housing Return: A Non-linear Vector Error Correction Approach

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Author Info

  • Kuan-Min, Wang

    ()
    (Department of Finance, Overseas Chinese Institute of Technology, 100 Chiao Kwang Road, Taichung, 40721, Taiwan)

  • Yuan-Ming, Lee

    ()
    (Department of Finance, Diwan College of Management, 87-1 Nanshih Li, Madou, Taiwan)

  • T.T.Binh, Nguyen

    ()
    (Department of Accounting, Chaoyang University of Technology, 168 Jifong E. Road, Wufong Township Taichung County, 41349, Taiwan)

Abstract

Conclusions of past works on the inflation hedging ability of real estate investment are not consistent. The reason for this perplexity might be the neglect of separation between high and low state of inflation, which has a great influence on empirical results. In order to examine the inflation hedging effectiveness of real estate with Taiwanese monthly housing returns and inflation, this paper uses the inflation as the threshold variable to create the nonlinear vector correction model that divides the inflation rates into high and low regime. We find robust evidence that when inflation rates are higher than 0.83% threshold value, housing returns are able to hedge against inflation, and, otherwise, they are unable. Using new methodology to discover new implications is main contribution of this study.

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Bibliographic Info

Article provided by Asian Real Estate Society in its journal International Real Estate Review.

Volume (Year): 11 (2008)
Issue (Month): 1 ()
Pages: 65-82

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Handle: RePEc:ire:issued:v:011:n:01:2008:p:65-82

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Postal: Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Web page: http://www.asres.org/

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Postal: Asian Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Related research

Keywords: Housing prices; Inflation; Nonlinear VECM; Taiwan;

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References

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  1. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
  2. Ewing, Bradley T. & Payne, James E., 2005. "The response of real estate investment trust returns to macroeconomic shocks," Journal of Business Research, Elsevier, vol. 58(3), pages 293-300, March.
  3. N. Apergis & A. Rezitis, 2003. "Housing prices and macroeconomic factors in Greece: prospects within the EMU," Applied Economics Letters, Taylor & Francis Journals, vol. 10(9), pages 561-565.
  4. David Hartzell & John S. Hekman & Mike E. Miles, 1987. "Real Estate Returns and Inflation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(1), pages 617-637.
  5. Glascock, John L & Lu, Chiuling & So, Raymond W, 2000. "Further Evidence on the Integration of REIT, Bond, and Stock Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 20(2), pages 177-94, March.
  6. W. B. Brueggeman & A. H. Chen & T. G. Thihodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354.
  7. K.C. Chan & Patric H. Hendershott & Anthony B. Sanders, 1990. "Risk and Return on Real Estate: Evidence from Equity REITs," NBER Working Papers 3311, National Bureau of Economic Research, Inc.
  8. K.C. Chen & Daniel D. Tzang, 1988. "Interest-Rate Sensitivity of Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 3(3), pages 13-22.
  9. Michael T. Bond & Michael J. Seiler, 1998. "Real Estate Returns and Inflation: An Added Variable Approach," Journal of Real Estate Research, American Real Estate Society, vol. 15(3), pages 327-338.
  10. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  11. Paul H. Goebel & Kee S. Kim, 1989. "Performance Evaluation of Finite-Life Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 4(2), pages 57-70.
  12. Crocker H. Liu & David J. Hartzell & Martin E. Hoesli, 1997. "International Evidence on Real Estate Securities as an Inflation Hedge," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(2), pages 193-221.
  13. Mike Miles & Tom McCue, 1984. "Commercial Real Estate Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 355-377.
  14. Lu, Chiuling & So, Raymond W, 2001. " The Relationship between REITs Returns and Inflation: A Vector Error Correction Approach," Review of Quantitative Finance and Accounting, Springer, vol. 16(2), pages 103-15, March.
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Cited by:
  1. Katrakilidis, Constantinos & Trachanas, Emmanouil, 2012. "What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration," Economic Modelling, Elsevier, vol. 29(4), pages 1064-1069.

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