The Inflation Hedging Effectiveness of Residential Property – Evidence from Three Emerging Asian Markets


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Henry Koon Nam Lee

221 / 251




International Real Estate Review



Using a non-causality approach based on the conventional approach of Fama and Schwert (1977), cointegration method in Johansen (1988), and autoregressive distributed lag (ARDL) cointegration technique in Pesaran et al. (2001) and Granger et al. (2000), this study examines the inflation hedging effectiveness of residential property in three of the largest emerging market (EM) economies: China, India and Russia. While the results of the Fama and Schwert (1977) regression indicate that residential properties in China and Russia provide a short-term hedge against expected inflation, this is not the case for those in India against both expected and unexpected inflation. Consistent with the results of the developed economies, the Johansen and ARDL cointegration results provide strong evidence to support the hypothesis that inflation and the residential properties in the three largest EM economies are cointegrated. This implies that the residential properties in these three countries provide a long-term hedge for inflation. In addition, the causality results show evidence that inflation has a lead effect on residential property prices in India over the long run. The empirical results of the cointegration tests confirm that residential properties could be considered as a reliable hedge against inflation for EMs in the long run and suggest that investors should overweigh their investment in residential property assets during periods of persistent inflation in EMs.


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ARDL Cointegration, Residential Property, Emerging Housing Market, Inflation Hedging, Fisher Hypothesis