The inflation-hedging characteristics of Malaysian residential property

Abstract

Purpose

This study aims to extend the current literature by examining the inflation-hedging effectiveness of Malaysian residential property in the short run and long run. Malaysia is an emerging market and has some unique characteristics. Therefore, a dedicated study in this market is critical.

Design/methodology/approach

The analysis of this study involves two stages. The first stage is to estimate the inflation-hedging ability of Malaysian residential property in the short run. The Fama and Schwert model was employed. Thereafter, the long-run inflation-hedging effectiveness was assessed by using a dynamic ordinary least squares (DOLS) model.

Findings

The Fama and Schwert tests reveal that Malaysian residential property does provide some satisfactory hedge against the expected inflation component over the short run. However, variations are evident among different types of residential property. The DOLS results provide strong evidence to support that housing is an effective hedge against the expected inflation in the long run, whereas no comparable evidence is found for the unexpected inflation component.

Practical implications

The findings enable more informed and practical investment decision-making regarding the role of housing in inflation risk management.

Originality/value

This paper is the first study to offer empirical evidence of the inflation-hedging attributes of Malaysian residential property. Moreover, the inflation-hedging effectiveness of different types of residential property is also compared for the first time.

Citation

Lin Lee, C. (2014), "The inflation-hedging characteristics of Malaysian residential property", International Journal of Housing Markets and Analysis, Vol. 7 No. 1, pp. 61-75. https://doi.org/10.1108/IJHMA-10-2012-0053