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Can housing investment hedge against inflation?

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  • Binh Thi Thanh Nguyen

Abstract

Purpose - This paper aims to test the hedging ability of housing investment against inflation in Japan and the USA during the period 2000–2020. Design/methodology/approach - This study applies the deep learning method and The exponential general autoregressive conditional heteroskedasticity in mean (1, 1) model with breaks. Findings - Within the asymmetric framework, it is found that housing returns (HR) can hedge against inflation in both these markets, which mentions that when investing in the housing market in Japan and the USA, investors are compensated for bearing from inflation. This result is consistent with Fisher’s hypothesis. Especially, the empirical results show that the risk-return tradeoff is available in Japan’s housing market and not available in the US housing market. Any signal of a high inflation rate – referred to as “bad news” – may cause a drop in HR in Japan and a raise in the USA. Originality/value - To the best of the author’s knowledge, this is one of the first studies using the deep learning method (long short-term memory model) to estimate the expected/unexpected inflation rates.

Suggested Citation

  • Binh Thi Thanh Nguyen, 2022. "Can housing investment hedge against inflation?," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 16(6), pages 1071-1088, August.
    • Handle: RePEc:eme:ijhmap:ijhma-06-2022-0084
    DOI: 10.1108/IJHMA-06-2022-0084
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    More about this item

    Keywords

    Inflation hedge; Housing return; Deep learning; Japan; The USA; Long short-term memory model; C22; L85; P44;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
    • P44 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - National Income, Product, and Expenditure; Money; Inflation

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