REIT Stock Prices with Inflation Hedging and Illusion

Posted: 9 Jul 2012

See all articles by William G. Hardin

William G. Hardin

Florida International University (FIU) - College of Business Administration

Xiaoquan Jiang

Florida International University (FIU) - Department of Finance

Zhonghua Wu

Florida International University (FIU)

Date Written: July 9, 2012

Abstract

Employing dividend yield decomposition, this paper explores the inflation illusion and inflation hedging effects on REIT stock prices. Results show that changes in expected inflation explain a large share of the time series variation of the mispricing components of the dividend yield. Also, while both inflation hedging and inflation illusion effects exist for REITs, the inflation illusion effect tends to dominate the hedging effect during the 1980 to 2008 period. These results suggest that investors are unable to quickly reconcile changes in discount rates and dividend growth rates associated with inflation into stock prices. The findings also provide an alternative explanation as to why short-term REIT returns are often negatively related to expected inflation.

Keywords: Stock prices, Inflation illusion, Dividend yield decomposition, REITs

JEL Classification: G11, G12, E31

Suggested Citation

Hardin, William G. and Jiang, Xiaoquan and Wu, Zhonghua, REIT Stock Prices with Inflation Hedging and Illusion (July 9, 2012). Journal of Real Estate Finance and Economics, Vol. 45, No. 1, 2012, Available at SSRN: https://ssrn.com/abstract=2102707

William G. Hardin (Contact Author)

Florida International University (FIU) - College of Business Administration ( email )

Miami, FL 33199
United States

Xiaoquan Jiang

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Zhonghua Wu

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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