REIT Investments and Hedging Against Inflation

Bahram Adrangi, Arjun Chatrath and Kambiz Raffiee

Journal of Real Estate Portfolio Management, 2004, vol. 10, issue 2, 97-112

Abstract: Executive Summary. This paper investigates the relationship between equity and mortgage real estate investment trust (REIT) returns and inflation. The objective is to establish whether securitized real estate investments provide a reliable inflation hedge. Regression results show that real REIT returns are negatively correlated with the unexpected component of inflation. Therefore, equity and mortgage REIT investments may not offer a safe haven during inflationary periods. Chow tests confirm that there is evidence of a decoupling of REITs from the general stock market for more recent intervals. Fama's proxy hypothesis is also tested: the negative relationship between REITs and inflation is symptomatic of a positive relationship between REITs and real economic activity. However, no support is found for this hypothesis.

Date: 2004
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DOI: 10.1080/10835547.2004.12089701

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