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Real Estate, Stocks, and Bonds as a Deflation Hedge

Author

Listed:
  • Benedikt Fleischmann

    (Deutsche Bundesbank)

  • Carsten Fritz

    (IREBS International Real Estate Business School, University of Regensburg, Germany)

  • Steffen Sebastian

    (IREBS International Real Estate Business School, University of Regensburg and ZEW, Center for Economic Research)

Abstract

With inflation rates remaining close to zero in all major developed economies for long periods of time, especially from 1998 - 2015, investors have become increasingly concerned about the potential effects of deflation on asset value. Negative inflation rates were observed between 1998 and 2009 in Hong Kong and Japan, and those economies faced several years of deflation. There is a rich body of literature on the effects of inflation hedging on the returns of stocks, bonds, and real estate. We examine asset returns for these products between 1986 and 2009, and use an ARIMA model to explore whether they offer a deflation hedge. We show that rents and real estate prices are closely linked to consumer prices, which confirms previous findings on inflation hedging. Since the relationship is generally positive and over proportional, we find that real estate is not an effective hedge against deflation. In contrast, we find no relationships between stocks or bonds and inflation. Only for Japanese bonds are we able to find a significantly negative relationship with unexpected deflation.

Suggested Citation

  • Benedikt Fleischmann & Carsten Fritz & Steffen Sebastian, 2019. "Real Estate, Stocks, and Bonds as a Deflation Hedge," International Real Estate Review, Global Social Science Institute, vol. 22(1), pages 1-26.
    • Handle: RePEc:ire:issued:v:22:n:01:2019:p:1-26
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    References listed on IDEAS

    as
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    Cited by:

    1. Emmanuel Anoruo, 2019. "Asymmetric Causality Analysis of the Interactions Between Gold and REIT Returns," International Real Estate Review, Global Social Science Institute, vol. 22(4), pages 513-534.
    2. Yuming Li & Jing Yang, 2020. "Momentum Strategies with Home Price Indices and Stocks," International Real Estate Review, Global Social Science Institute, vol. 23(2), pages 861-892.
    3. Yuming Li & Jing Yang, 2020. "Momentum Strategies with Home Price Indices and Stocks," International Real Estate Review, Global Social Science Institute, vol. 23(2), pages 235-266.

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    More about this item

    Keywords

    Inflation-Hedging; Deflation; Real Estate Investments; House Prices;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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