Abstract
This study examined the hedging effect of real estate assets against inflation through spectral analysis in frequency domain in addition to the commonly employed time series methodologies in time domain. Using the generalized Fisher hypothesis suggested by Fama and Schwertz, we estimated both expected and unexpected inflation rates and then analyzed the relationship between inflation and housing assets. We found that there was a statistically significant relationship between housing assets and inflation. In additional analysis, however, stock price was not found to have a significant impact on house prices. We also looked at the long-term relationship between house prices and inflation by conducting Johansen cointegration tests. The result showed that there was a long-term equilibrium relationship between house prices and inflation. The result of spectral analysis in frequency domain confirmed that there is a long-term relationship between inflation and house prices which follow a similar cycle in close relations with both leading and lagging indicators. We can say that the result provides a strong empirical evidence that supports the hedging effect of real estate assets against inflation that was found through time series analysis in time domain.
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