Development of a Dynamic Investment Strategy under Alternative Inflation Cycle Scenarios

Stephen A. Pyhrr, Waldo L. Born () and James R. Webb ()
Additional contact information
Stephen A. Pyhrr: Graduate School of Business The University of Texas at Austin Austin, Texas 78712 Davis & Associates 5929 Balcones Drive Austin, Texas 78731, http://www.bus.utexas.edu/
Waldo L. Born: College of Business Eastern Illinois University Charleston, Illinois 61920, http://www.eiu.edu/~buslum/
James R. Webb: Department of Finance James J. Nance College of Business Administration Cleveland State University Cleveland, Ohio 44115, http://www.csuohio.edu/finance_department/index.htm

Journal of Real Estate Research, 1990, vol. 5, issue 2, 177-194

Abstract: Inflation and inflation cycles have been a major underlying reason for the financial successes and failures of real estate investors in recent history. These cycles have complex impacts on cash flow variables and thus on real estate returns and investment values. This study presents a decision framework and operational model to project investment returns for alternative inflation cycle scenarios and demonstrates their application for developing a dynamic real estate investment strategy. Such a strategy provides for portfolio revisions during different stages of the inflation cycle and assumes that investors seek to maximize expected "real" rates of return and hence owner's wealth. A probabilistic discounted cash flow model is designed and used to inflation-adjust each cash flow variable affected. Mathematical relationships are developed for specifying unique cash flow variable linkages and sensitivities, with lead and lag periods consistent with empirical evidence of timing of inflation impacts. Finally strategic implications for acquisition and disposition policy are discussed.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 1990
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Citations: View citations in EconPapers (7)

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