Real Estate versus Financial Asset Returns and Inflation: Can a P* Trading Strategy Improve REIT Investment Performance?
The ability of a financial or real asset to provide a rate of return above the rate of inflation is crucial to investors. The financial literature on the inflation-hedging effectiveness of various investments suggests that real estate acts as a hedge against inflation on a period-by-period basis, while financial assets do not. Given this, an investor who could accurately forecast changes in inflation, and therefore alter his/her investment portfolio between real estate and financial assets, should be able to significantly improve portfolio returns. Recently, a new method of measuring potential inflation has been developed by the Federal Reserve Board. Dubbed P*, it relates long-run spending in the economy to long- run output and gives an implied value for future inflation. In this study, the accuracy of P* in forecasting prices is compared to conventional forecasts of inflation. The P* variable is then used to generate a decision rule for investors in terms of holding financial assets (which performs well in periods of low or falling inflation) and real estate (which has been identified as an asset that behaves as an effective hedge against inflation). The results for this strategy are then contrasted with the performance of selected assets under a simple buy-and -hold strategy.
Volume (Year): 10 (1995)
Issue (Month): 3 ()
|Contact details of provider:|| Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323|
Web page: http://www.aresnet.org/
|Order Information:|| Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323|
Web: http://pages.jh.edu/jrer/about/get.htm Email:
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.:
- Nelson, Charles R, 1976. "Inflation and Rates of Return on Common Stocks," Journal of Finance, American Finance Association, vol. 31(2), pages 471-483, May.
- Martin Feldstein, 1978.
"Inflation and the Stock Market,"
NBER Working Papers
0276, National Bureau of Economic Research, Inc.
- Martin Feldstein, 1983. "Inflation and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 186-198 National Bureau of Economic Research, Inc.
- Feldstein, Martin, 1980. "Inflation and the Stock Market," American Economic Review, American Economic Association, vol. 70(5), pages 839-847, December.
- Gultekin, N Bulent, 1983. " Stock Market Returns and Inflation Forecasts," Journal of Finance, American Finance Association, vol. 38(3), pages 663-673, June.
When requesting a correction, please mention this item's handle: RePEc:jre:issued:v:10:n:3:1995:p:327-334. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (JRER Graduate Assistant/Webmaster)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.