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Real Estate as a Hedge against Inflation
Název práce v češtině: Investice do realit jako zajištění proti inflaci
Název v anglickém jazyce: Real Estate as a Hedge against Inflation
Klíčová slova: nemovitosti, inflace, zajištění
Klíčová slova anglicky: real estate, inflation, hedge
Akademický rok vypsání: 2021/2022
Typ práce: bakalářská práce
Jazyk práce: angličtina
Ústav: Institut ekonomických studií (23-IES)
Vedoucí / školitel: PhDr. Pavel Streblov
Řešitel: skrytý - zadáno vedoucím/školitelem
Datum přihlášení: 05.09.2022
Datum zadání: 05.09.2022
Datum a čas obhajoby: 13.06.2023 09:00
Místo konání obhajoby: Opletalova, O105, místnost č. 105
Datum odevzdání elektronické podoby:03.05.2023
Datum proběhlé obhajoby: 13.06.2023
Oponenti: PhDr. Michal Hlaváček, Ph.D.
 
 
 
Seznam odborné literatury
Bao, Helen X.H., Pu Gong, and Boli Yang. “Real Estate Investment Trust Returns: Predictability and Determinants.” Journal of Real Estate Practice and Education 18, no. 1 (2015): 107–16.
Bond, Michael T., and Michael J. Seiler. “Real Estate Returns and Inflation: An Added Variable Approach.” The Journal of Real Estate Research 15, no. 3 (1998): 327–38.
Case, Bradford and Wachter, Susan M., Inflation and Real Estate Investments (November 29, 2011). U of Penn, Inst for Law & Econ Research Paper No. 11-33.
Cieslak, Anna, and Pavol Povala. “Expected Returns in Treasury Bonds.” The Review of Financial Studies, vol. 28, no. 10, 2015, pp. 2859–901. JSTOR, http://www.jstor.org/stable/24466890.
DAS, Mahamitra. Revisiting the anomalous relationship between inflation and real estate investment trust returns in presence of structural breaks. International journal of economics and financial issues [online]. Mersin: EconJournals, 2020, 10(1), 250-258 [cit. 2022-06-17]. ISSN 2146-4138.
Fama, E., & Schwert, G. (1977). Asset Returns and Inflation. Journal of Financial Economics, 5, 115-146.
Feng, Zhilan, S. McKay Price, and C.F. Sirmans. “An Overview of Equity Real Estate Investment Trusts (REITs): 1993–2009.” Journal of Real Estate Literature 19, no. 2 (2011): 307–44.
Ibbotson, Roger G., and Rex A. Sinquefield. “Stocks, Bonds, Bills and Inflation: Updates.” Financial Analysts Journal 35, no. 4 (1979): 40–44.
Liang, Youguo, Michael J. Seiler, and Arjun Chatrath. “Are REIT Returns Hedgeable?” The Journal of Real Estate Research 16, no. 1 (1998): 87–98.
Nelling, Edward, and Joseph Gyourko. “The Predictability of Equity REIT Returns.” The Journal of Real Estate Research 16, no. 3 (1998): 251–68.
Rubens, Jack H., Michael T. Bond, and James R. Webb. “The Inflation-Hedging Effectiveness of Real Estate.” The Journal of Real Estate Research 4, no. 2 (1989): 45–55.
Wurtzebach, Charles H., et al. “The Impact of Inflation and Vacancy of Real Estate Returns.” The Journal of Real Estate Research, vol. 6, no. 2, 1991, pp. 153–68.


Předběžná náplň práce v anglickém jazyce
Research question and motivation

The aim of this thesis is to explore the potential of real estate investment to hedge its participants against inflation across different countries.
The first part of the thesis will cover essential literature overview and explain key concepts used throughout the text.
The second part will focus on describing real estate investment types, ways of financing, and related risks. A short introduction to stocks and bonds will follow, as they will be used for comparison in the final analysis part of the thesis. Next, inflation will be explored, with emphasis on its causes and components. The following part will provide theoretical framework for assets´ inflation-hedging characteristics, mainly referring to Irving Fischer´s theory of the relationship between inflation, nominal, and real returns. Further on, data and methodology employed to study investment returns with respect to inflation will be introduced and described. The following part will provide analysis of the results obtained from the tested models and compare real estate hedging abilities across the studied countries. The results will then be used as a benchmark for other assets´ inflation-hedging qualities, e.g., stocks and bonds, to provide an idea of how real estate performs among other types of investments. The thesis will be wrapped up with a conclusion.

Contribution

The inflation-hedging question has been subject to numerous surveys and research, varying in the asset of interest, assumptions, and, in the case of real estate, the relevant country. The answer to whether an asset is an effective hedge against inflation strongly depends on the time of the study, as the current economic situation and world events significantly influence consumers´ behavior, interest rates, and, consequently, the unexpected rate of inflation, which might erode the inflation-protective characteristics of an asset.
This thesis will contribute to the existing studies covering the topic in question as follows:
In the theoretical part of this thesis, real estate investment will be overviewed and examined, including a breakdown of its pros and cons as well as its connection to inflation and interest rates. The main contribution is then represented by the cross-country comparison of real estate investment returns, thus exploring how this type of investment performs in different economies. To better evaluate real estate´s hedging potential, the results will then be compared with returns on stocks and bonds. Apart from retesting historical data, the most up-to-date datasets will be employed, thus providing insight into the current investment situation. Given the actual world development of interest rates, rising prices, and uncertainty, this study might bring intriguing results, otherwise impossible to observe in times of a more stable economic situation.


Methodology

The methodology is based on analyzing relevant data with the use of comparison, graphs, econometrics, and references to academic literature. As countries of interest, the Czech Republic, Slovakia, Switzerland, the USA, Turkey, and China have been selected. Inflation for individual countries will be represented by the CPI index, retrieved from the World Bank Group. Data on interest rates are provided by the national banks of the selected countries. For all countries, indirect real estate returns will be represented by the returns of real estate investment trusts worldwide, tracked by the FTSE EPRA Nareit Global Real Estate Index Series. Home price data will be gathered from FRED (Federal Reserve Economic Data) as the Real Residential Property Prices datasets, based on statistics provided by BIS (the Bank for International Settlements).
Stock performance will be measured by the Standard and Poor´s 500 index annual returns, obtained from Macrotrends.net. Annual bond returns will be represented by returns on the US Treasury Bonds.
To test the inflation-hedging properties, Fama-Schwert´s (1977) regression model will be applied to a panel dataset. In this test, the dependent variable, investment return, is regressed on the expected and unexpected inflation rate. The expected inflation rate represents the only unobserved variable, which can be proxied by official inflation forecasts.
Coefficients, disturbances, and variables of this model will be elaborated on in the thesis.

Structure

Abstract
Introduction
Literature overview
Key concepts used throughout the thesis
Real estate investment methods (direct, indirect)
Possible ways of financing
Risks related to REI
Stocks and bonds
Inflation
Hedging against inflation
Data and Methodology
Results analysis
Summary
Conclusion





 
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