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Does Inflation Illusion Explain the Relation between REITs and Inflation?

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  • Gwangheon Hong

    ()

  • Bong Lee

    ()

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    Abstract

    We examine whether the observed negative relations between real estate investment trust (REIT) returns and inflation can be explained by the inflation illusion. We identify the mispricing component in REIT prices based on present value models, both linear and loglinear, and then we investigate whether inflation can explain the mispricing component. When we allow for time-varying interest rates, inflation no longer explains the REIT mispricing component. Instead, we find that behavioral factors such as consumer sentiments contribute to the mispricing of REIT prices. Copyright Springer Science+Business Media, LLC 2013

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    File URL: http://hdl.handle.net/10.1007/s11146-011-9353-9
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    Bibliographic Info

    Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

    Volume (Year): 47 (2013)
    Issue (Month): 1 (July)
    Pages: 123-151

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    Handle: RePEc:kap:jrefec:v:47:y:2013:i:1:p:123-151

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    Web page: http://www.springerlink.com/link.asp?id=102945

    Related research

    Keywords: REIT returns; Inflation hedge; Mispricing; G12; R31; E44; C32;

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