Inflation Hedging Characteristics of Real Estate Assets in Hong Kong

Abstract

In this paper the inflation hedging characteristics of Hong Kong real estate market are examined using 1998-2006 data. Both short-term and long-term methods are used. The short-term method follows Fama and Schwert framework. To separate expected and unexpected inflation rate from nominal inflation rate, it is assumed that expected inflation can be reflected directly from time deposit rate in Hong Kong. For long-term analysis the Cointegration method and Granger Causality test are adopted in the analysis. It is found that real estate assets in Hong Kong are not good hedge against inflation, in both short-term and long-term. Also, different types (commercial, office, residential and industrial) of properties show different inflation hedging characters in different periods.

Keywords: Real estate, Property returns, Inflation, Hedging

JEL Classification: C22, E3, R51