The Relationship between REITs Returns and Inflation: A Vector Error Correction Approach

Chiuling Lu and Raymond W So

Review of Quantitative Finance and Accounting, 2001, vol. 16, issue 2, 103-15

Abstract: Previous studies show that REITs returns and inflation are negatively related. This paper reexamines this perverse inflation hedge phenomenon by investigating the relationship among REITs returns, real activities, monetary policy and inflation through a Vector Error Correction Model. Empirical results show that inflation does not Granger-cause REITs returns and that REITs returns signal changes in monetary policy. The observed negative relationship between REITs returns and inflation is merely a proxy for the more fundamental relationship between REITs returns and other macroeconomic variables. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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