REIT Stock Prices with Inflation Hedging and Illusion
William G. Hardin III
Florida International University (FIU) - College of Business Administration
Florida International University (FIU) - Department of Finance
Florida International University (FIU)
July 9, 2012
Journal of Real Estate Finance and Economics, Vol. 45, No. 1, 2012
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, E31Accepted Paper Series
Date posted: July 9, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.703 seconds