Abstract
This study investigates the relationship between returns on Real Estate Investment Trusts (REITs) and anticipated inflation. It was motivated by the contradictory findings in the literature concerning the inflation-hedging characteristics of financial and real assets. We employ the methodology developed by Fama and Schwert, which represents a generalization of the Fisher equation. Two different measures of anticipated inflation were used to estimate the regression equations. The results show that REITs generally tend to behave like equities with respect to their hedging characteristics, regardless of how inflation expectations are measured. When we used a survey measure of anticipated inflation, however, we found some evidence that REITs are partial hedges against anticipated inflation.
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