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Inflation-hedging Behavior of a Securitized Real Estate Market

Author

Listed:
  • Wei-han Liu

    () (Tamkang University)

  • Zhefang Zhou

    (City University of Hong Kong)

Abstract

This paper examines the inflation-hedging behavior of the Hong Kong securitized real estate market between April 1986 and April 2007. The monthly series of the Hang Seng Property Index (HSPI) is selected as the proxy of the Hong Kong securitized real estate market due to its comprehensive coverage and availability of rich data. We find that the vector autoregressive forecast error method, which is introduced by Den Haan (2000), outperforms the traditional linear vector autoregressive model and vector error correction model techniques in depicting the comovement between the HSPI and inflation rate. The comovement estimates show a positive correlation between the HSPI and inflation rate in the short-term and a negative correlation in the long term which indicates that the Hong Kong securitized real estate market can serve as an inflation hedge in the short term, but becomes a perverse inflation hedge in the long run. This inflation-hedging pattern differs from those of its neighboring major East Asian markets. This study demonstrates that the inflation-hedging capability of securitized real estate is not a static issue, but rather, depends on the length of the forecast horizon.

Suggested Citation

  • Wei-han Liu & Zhefang Zhou, 2009. "Inflation-hedging Behavior of a Securitized Real Estate Market," International Real Estate Review, Asian Real Estate Society, vol. 12(3), pages 221-251.
  • Handle: RePEc:ire:issued:v:12:n:03:2009:p:221-251
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation hedge; Comovement; Vector autoregressive; Model forecast; Error-based model; Securitized real estate;

    JEL classification:

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

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