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Is Real Estate Really an Inflation Hedge? Evidence from Taiwan

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This study examines whether Taiwan's housing returns hedge against expected and unexpected inflation. In other words, how well does the rise in housing returns compensate for the costs added as a result of the shrink in wealth and purchasing power? Within the exponential generalized autoregressive conditional heteroskedasticity in mean model framework, we further explore the impact of conditional hetero-risk on housing return and the influence of asymmetric information on conditional risk. Over the period from 1991 to 2006, the empirical results reveal negative relationships between housing returns and expected as well as unexpected inflation, proving the ineffective inflation hedge of Taiwan's housing investment. The determinant of this phenomenon is the leverage shock between ‘good news’ and ‘bad news’.
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Keywords: C22; L85; P44; exponential generalized autoregressive conditional heteroskedasticity model; inflation; leverage effect; real estate

Document Type: Research Article

Affiliations: 1: Department of Economics, Feng Chia University, 100 Wenhwa Road, Taichung 40724, Taiwan 2: Department of Finance, The Overseas Chinese Institute of Technology, 100 Chiao Kwang Road, Taichung, 40721, Taiwan 3: Department of Accounting, Chaoyang University of Technology, 168 Jifong E. Road, Wufong Township Taichung County, 41349, Taiwan

Publication date: June 1, 2008

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