Abstract
Executive Summary. This paper investigates the relationship between equity and mortgage real estate investment trust (REIT) returns and inflation. The objective is to establish whether securitized real estate investments provide a reliable inflation hedge. Regression results show that real REIT returns are negatively correlated with the unexpected component of inflation. Therefore, equity and mortgage REIT investments may not offer a safe haven during inflationary periods. Chow tests confirm that there is evidence of a decoupling of REITs from the general stock market for more recent intervals. Fama's proxy hypothesis is also tested: the negative relationship between REITs and inflation is symptomatic of a positive relationship between REITs and real economic activity. However, no support is found for this hypothesis.
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