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Do REITs Hedge against Inflation? Evidence from an African Emerging Market

Author

Listed:
  • Daniel Ibrahim Dabara
  • Job Taiwo Gbadegesin
  • Abdul-Rasheed Amidu
  • Tunbosun Biodun Oyedokun
  • Augustina Chiwuzie

Abstract

Purpose: This study examines how returns on Nigerian REIT (N-REIT) behave in relation to inflation changes from 2008 to 2019 to provide information for investment decisions.Design/Methodology/Approach: Eleven years monthly return data from 2008 to 2019 were collected from databases and annual reports of the three active REITs in Nigeria. Inflation rates covering the study period were collected from the Central Bank of Nigeria’s database. The authors adopt the Fama and Schwert model, an extension of the Fisher hypothesis, to test N- REIT's inflation-hedging capability.Findings: The empirical results suggest that N-REIT has perverse hedging-characteristics (poor inflation hedges) across all inflation exposures (actual, expected, and unexpected). The Engle- Granger causality tests conducted corroborates these results.Practical Implication: This study reveals the peculiar nature of Nigerian REITs in relation to inflation, which could have profound investment implication for domestic and foreign investors.Originality/Value: This study is one of the first to empirically analyse the inflation-hedging characteristics of REITs in the second-largest African REIT market (N-REIT).

Suggested Citation

  • Daniel Ibrahim Dabara & Job Taiwo Gbadegesin & Abdul-Rasheed Amidu & Tunbosun Biodun Oyedokun & Augustina Chiwuzie, 2021. "Do REITs Hedge against Inflation? Evidence from an African Emerging Market," AfRES 2021-033, African Real Estate Society (AfRES).
    • Handle: RePEc:afr:wpaper:2021-033
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    References listed on IDEAS

    as
    1. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
    2. Fatnassi, Ibrahim & Slim, Chaouachi & Ftiti, Zied & Ben Maatoug, Abderrazek, 2014. "Effects of monetary policy on the REIT returns: Evidence from the United Kingdom," Research in International Business and Finance, Elsevier, vol. 32(C), pages 15-26.
    3. Omokolade Akinsomi, 2020. "How resilient are REITs to a pandemic? The COVID-19 effect," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 39(1), pages 19-24, July.
    4. Isil Erol & Dogan Tirtiroglu, 2008. "The inflation-hedging properties of Turkish REITs," Applied Economics, Taylor & Francis Journals, vol. 40(20), pages 2671-2696.
    5. Taderera, Marimo & Akinsomi, Omokolade, 2020. "Is commercial real estate a good hedge against inflation? Evidence from South Africa," Research in International Business and Finance, Elsevier, vol. 51(C).
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    7. Salisu, Afees A. & Raheem, Ibrahim D. & Ndako, Umar B., 2020. "The inflation hedging properties of gold, stocks and real estate: A comparative analysis," Resources Policy, Elsevier, vol. 66(C).
    8. Martin Hoesli & Colin Lizieri & Bryan MacGregor, 2008. "The Inflation Hedging Characteristics of US and UK Investments: A Multi-Factor Error Correction Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 36(2), pages 183-206, February.
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    11. Lu, Chiuling & So, Raymond W, 2001. "The Relationship between REITs Returns and Inflation: A Vector Error Correction Approach," Review of Quantitative Finance and Accounting, Springer, vol. 16(2), pages 103-115, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    emerging economies; Inflation-Hedge; Investment; real estate; Returns; risk.;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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