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Real Estate Returns and Inflation: An Added Variable Approach

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Author Info
Michael T. Bond () (Department of Finance Cleveland State University Cleveland, Ohio 44115)
Michael J. Seiler () (Department of Finance Hawaii Pacific University Honolulu, Hawaii 96813)
Abstract

This study analyses the inflation hedging effectiveness of residential real estate over the 1969-94 period. The results indicate that residential real estate is a significant hedge against both expected and unexpected inflation. These results indicate that since financial assets are not good inflation hedges in periods of high unexpected inflation, including real estate in a portfolio should decrease the variance of the portfolio returns. These results were made possible by the use of the Added Variable Regression Method (AVRM), a measure which has yet to be employed in this context. There are nine variables included in the AVRM framework which are also found to have significant explanatory power relative to residential real estate returns.

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File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol15n03/v15p327.pdf
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Publisher Info
Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 15 (1998)
Issue (Month): 3 ()
Pages: 327-338
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:jre:issued:v:15:n:3:1998:p:327-338

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Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November. [Downloadable!] (restricted)
  2. Fogler, H Russell & Granito, Michael R & Smith, Laurence R, 1985. " A Theoretical Analysis of Real Estate Returns," Journal of Finance, American Finance Association, vol. 40(3), pages 711-19, July. [Downloadable!] (restricted)
  3. Bodie, Zvi, 1976. "Common Stocks as a Hedge against Inflation," Journal of Finance, American Finance Association, vol. 31(2), pages 459-70, May. [Downloadable!] (restricted)
  4. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. " Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-64, December. [Downloadable!] (restricted)
  5. Nelson, Charles R, 1976. "Inflation and Rates of Return on Common Stocks," Journal of Finance, American Finance Association, vol. 31(2), pages 471-83, May. [Downloadable!] (restricted)
  6. K. C. Chan & Patric H. Hendershott & Anthony B. Sanders, 1990. "Risk and Return on Real Estate: Evidence from Equity REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(4), pages 431-452. [Downloadable!] (restricted)
  7. Lars Peter Hansen & Ravi Jagannathan, 1994. "Assessing Specification Errors in Stochastic Discount Factor Models," NBER Technical Working Papers 0153, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. 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. [Downloadable!]
  9. Liu, Crocker H & Mei, Jianping, 1992. "The Predictability of Returns on Equity REITs and Their Co-movement with Other Assets," The Journal of Real Estate Finance and Economics, Springer, vol. 5(4), pages 401-18, December.
  10. K.C. Chan & Patric H. Hendershott & Anthony B. Sanders, 1991. "Risk and Return on Real Estate: Evidence from Equity REITs," NBER Working Papers 3311, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. John M. Clapp & Carmelo Giaccotto & Dogan Tirtiroglu, 1991. "Housing Price Indices Based on All Transactions Compared to Repeat Subsamples," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 270-285. [Downloadable!] (restricted)
  12. Donald R. Haurin & Patric H. Hendershott, 1991. "House Price Indexes: Issues and Results," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 259-269. [Downloadable!] (restricted)
  13. Jack H. Rubens & Michael T. Bond & James R. Webb, 1989. "The Inflation-Hedging Effectiveness of Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 4(2), pages 45-56. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tracey West & Andrew C. Worthington, 2003. "Macroeconomic risk factors in Australian commercial real estate, listed property trust and property sector stock returns: A comparative analysis using GARCH-M," School of Economics and Finance Discussion Papers and Working Papers Series 160, School of Economics and Finance, Queensland University of Technology. [Downloadable!]
  2. Fuad Hasanov & Douglas Dacy, 2005. "Measuring and Analyzing Returns on Aggregate Residential Housing," Finance 0510005, EconWPA. [Downloadable!]
  3. Kuan-Min, Wang & Yuan-Ming, Lee & T.T.Binh, Nguyen, 2008. "Asymmetric Inflation Hedge of Housing Return: A Non-linear Vector Error Correction Approach," International Real Estate Review, Asian Real Estate Society, vol. 11(1), pages 65-82. [Downloadable!]
  4. Shaun K. Roache & Alexander P. Attie, 2009. "Inflation Hedging for Long-Term Investors," IMF Working Papers 09/90, International Monetary Fund. [Downloadable!]
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