Do REITs Hedge against Inflation? Evidence from an African Emerging Market

Abstract

Purpose -This study examines how returns on Nigerian REIT (N-REIT) behave in relation to inflation changes from 2008 to 2019 to provide information for investment decisions.Design/Methodology/Approach -Eleven years monthly return data from 2008 to 2019 were collected from databases and annual reports of the three active REITs in Nigeria. Inflation rates covering the study period were collected from the Central Bank of Nigeria's database. The authors adopt the Fama and Schwert model, an extension of the Fisher hypothesis, to test N-REIT's inflation-hedging capability.Findings -The empirical results suggest that N-REIT has perverse hedging-characteristics (poor inflation hedges) across all inflation exposures (actual, expected, and unexpected). The Engle-Granger causality tests conducted corroborates these results.Practical Implication -This study reveals the peculiar nature of Nigerian REITs in relation to inflation, which could have profound investment implication for domestic and foreign investors.Originality/Value -This study is one of the first to empirically analyse the inflation-hedging characteristics of REITs in the second-largest African REIT market (N-REIT).