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The Short-Term Inflation-Hedging Characteristics of U.K. Real Estate

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Abstract

This study investigates the short-term inflation-hedging characteristics of U.K. real estate compared to other U.K. investments. It considers not only total returns but also changes in income and changes in capital values. The analyses are undertaken using annual and quarterly data. Stocks, bonds, appraisal-based real estate (including the three property types, separately), and real estate stocks are considered. Real estate series, constructed from the original appraisal series to take account of autocorrelation, also are used. The methodology is based on that devised by Fama and Schwert (1977) and tests are undertaken for stationarity and structural breaks. Hypotheses are established about the coefficients on expected and unexpected inflation in the model, and these are tested. It is concluded that real estate has poorer short-term hedging characteristics for total return, change in capital value, and change in income than stocks but better characteristics than bonds. However, there is evidence to suggest that the relationships change under different economic environments.

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Authors and Affiliations

  1. Management Studies, University of Geneva, Switzerland

    Martin Hoesli

  2. Department of Accountancy, University of Aberdeen, Scotland

    Martin Hoesli

  3. Centre for Property Research, Department of Land Economy, University of Aberdeen, Scotland

    Bryan D MacGregor

  4. Department of Property Valuation and Management, City University Business School, City University, London

    George Matysiak

  5. Centre for Property Research, Department of Land Economy, University of Aberdeen, Scotland

    Nanda Nanthakumaran

Authors
  1. Martin Hoesli
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  2. Bryan D MacGregor
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  3. George Matysiak
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  4. Nanda Nanthakumaran
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Hoesli, M., MacGregor, B.D., Matysiak, G. et al. The Short-Term Inflation-Hedging Characteristics of U.K. Real Estate. The Journal of Real Estate Finance and Economics 15, 27–57 (1997). https://doi.org/10.1023/A:1007797221329

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