This paper sets out to examine the inflation‐hedging ability of housing properties in Shanghai.
This paper examines both the short‐term and long‐term hedging characteristics of Shanghai residential properties against three types of inflation: actual, expected, and unexpected in the test period of 1997‐2005 by using the OLS model. Two methods, the Autoregressive Integrated Moving Average (ARIMA) and the Hedrick‐Prescott Filter, are used to estimate the expected inflation.
The results show that, while the Shanghai housing property market does not provide a hedge against actual expected and unexpected inflation during the period, a positive real rate of return is reported in all cases.
Data limitations are due to lack of complete market transaction records and it is necessary to rely on property indices produced by the private‐sector firms as a proxy for market movements.
The paper shows that government policy in this market is still a dominant factor affecting the rate of return and it has therefore implications for the construction of an efficient investment portfolio by institutional investors.
