U.S. and European Listed Real Estate as an Inflation Hedge

Jan Muckenhaupt, Martin Hoesli and Bing Zhu
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Jan Muckenhaupt: Technische Universität München (TUM)
Martin Hoesli: University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School
Bing Zhu: Technische Universität München (TUM)

No 24-34, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Assets’ capability to hedge against inflation has again come to the forefront given the recent surge in inflation. This paper investigates the inflation-hedging capability of an important asset class, i.e., listed real estate (LRE), using data from 1990 to the end of 2023, for the main European countries in terms of LRE market capitalization, but also the U.S. By using a Panel Markov switching vector error correction model (MS-VECM), we identify the hedging ability of LRE in crisis and non-crisis periods, both in the short and long term. We additionally compare the hedging ability of LRE with that of other asset classes. Listed real estate provides an effective hedge against inflation in the long run, both in crisis and non-crisis periods. In the short term, listed real estate only hedges against inflation in stable periods. LRE effectively serves as a hedge against inflation shocks, particularly protecting against unexpected inflation from the first month and against energy inflation during stable periods. While stocks surpass LRE in long-term inflation protection and LRE has short-term benefits, gold distinguishes itself from LRE by offering reliable long-run protection, but only in economic downturns. The results should provide important insights to investors seeking to allocate resources more efficiently in those turbulent times, both for the short and long terms.

Keywords: Inflation Hedging; Listed Real Estate Companies; Markov-Switching; Unexpected Inflation; Impulse Response Functions (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2024-05
New Economics Papers: this item is included in nep-eec, nep-mon, nep-rmg and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2434

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