The Asymmetric Response of Equity REIT Returns to Inflation

Posted: 11 Jan 2007

See all articles by Marc William Simpson

Marc William Simpson

The John B. and Lillian E. Neff Department of Finance, University of Toledo

Sanjay Ramchander

Colorado State University, Fort Collins - Department of Finance & Real Estate

James R. Webb

Cleveland State University

Abstract

This paper posits that the failure of past studies to document a positive relationship between REIT (Real Estate Investment Trust) returns and inflation is an artifact of the empirical framework that has predominated in these studies. Applying a pooled estimation methodology to an expansive data set containing 195 publicly traded equity REITs for the period 1981-2002, the study documents a strong asymmetry in the response of equity REIT returns to inflation. Specifically, when expected and unexpected inflation are separated into positive and negative changes, results indicate that equity REIT returns rise in response to both increases and decreases in inflation. The evidence, which is partly contingent on the prevailing monetary policy environment, carries important policy implications for portfolio management and provides insights into the observed anomalous relationship between REITs and inflation.

Keywords: REITs, inflation, asymmetry, pooled estimation

Suggested Citation

Simpson, Marc W. and Ramchander, Sanjay and Webb, James R., The Asymmetric Response of Equity REIT Returns to Inflation. Journal of Real Estate Finance and Economics, Vol. 34, No. 4, 2007, Available at SSRN: https://ssrn.com/abstract=956165

Marc W. Simpson

The John B. and Lillian E. Neff Department of Finance, University of Toledo ( email )

Toledo, OH 43606
United States

Sanjay Ramchander

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States
970-491-6681 (Phone)

James R. Webb (Contact Author)

Cleveland State University ( email )

1860 E. 18th St., BU 327E
Cleveland, OH 44115
United States
216-687-4716 (Phone)
216-687-4716 (Fax)

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