Alternative links to fulltext:DOI
| Item type: | Article | ||||
|---|---|---|---|---|---|
| Journal or Publication Title: | Journal of Property Investment and Finance | ||||
| Publisher: | MCB University Press | ||||
| Volume: | 33 | ||||
| Number of Issue or Book Chapter: | 1 | ||||
| Page Range: | pp. 19-44 | ||||
| Date: | 2015 | ||||
| Institutions: | Business, Economics and Information Systems > Institut für Immobilienenwirtschaft / IRE|BS > Lehrstuhl für Immobilienmanagement (Prof. Dr. Wolfgang Schäfers) | ||||
| Identification Number: |
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| Keywords: | Real estate, Co-integration, Inflation hedge, Inflation protection, Infrastructure investments, Shortfall risk | ||||
| Dewey Decimal Classification: | 300 Social sciences > 330 Economics | ||||
| Status: | Published | ||||
| Refereed: | Yes, this version has been refereed | ||||
| Created at the University of Regensburg: | Yes | ||||
| Item ID: | 31314 |
Abstract
Purpose – Similar to real estate, infrastructure investments are regarded as providing a good inflation hedge and inflation protection. However, the empirical literature on infrastructure and inflation is scarce. Therefore, the purpose of this paper is to investigate the short- and long-term inflation-hedging characteristics, as well as the inflation protection associated with infrastructure ...
Abstract
Purpose
– Similar to real estate, infrastructure investments are regarded as providing a good inflation hedge and inflation protection. However, the empirical literature on infrastructure and inflation is scarce. Therefore, the purpose of this paper is to investigate the short- and long-term inflation-hedging characteristics, as well as the inflation protection associated with infrastructure and real estate assets.
Design/methodology/approach
– Based on a unique data set for direct infrastructure performance, a listed infrastructure index, common direct and listed real estate indices, the authors test for short- and long-term inflation-hedging characteristics of these assets in the USA from 1991-2013. The authors employ the traditional Fama and Schwert (1977) framework, as well as Engle and Granger (1987) co-integration tests. Granger causality tests are further conducted, so as to gain insight into the short-run dynamics. Finally, shortfall risk measures are applied to investigate the inflation protection characteristics of the different assets over increasingly long investment horizons.
Findings
– The empirical results indicate that in the short run, only direct infrastructure provides a partial hedge against inflation. However, co-integration tests suggest that all series have a long-run co-movement with inflation, implying a long-term hedge. The causality tests reveal reverse unidirectional causality – while real estate asset returns are Granger-caused by inflation, infrastructure asset returns seem to cause inflation. These findings further confirm that both assets represent a distinct asset class. Ultimately, direct infrastructure investments exhibit the most desirable inflation protection characteristics among the set of assets.
Research limitations/implications
– This study only presents results based on a composite direct infrastructure index, as no sub-indices for sub-sectors are available yet.
Practical implications
– Investors seeking assets that are sensitive to inflation and mitigate inflation risk should consider direct infrastructure investments in their asset allocation strategy.
Originality/value
– This is the first study to examine the ability of direct infrastructure to assess inflation risk.
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