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Inflation hedging and protection characteristics of infrastructure and real estate assets

Daniel Wurstbauer (International Real Estate Business School, University of Regensburg, Regensburg, Germany.)
Wolfgang Schäfers (International Real Estate Business School, University of Regensburg, Regensburg, Germany.)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 2 February 2015




Similar to real estate, infrastructure investments are regarded as providing a good inflation hedge and inflation protection. However, the empirical literature on infrastructure and inflation is scarce. Therefore, the purpose of this paper is to investigate the short- and long-term inflation-hedging characteristics, as well as the inflation protection associated with infrastructure and real estate assets.


Based on a unique data set for direct infrastructure performance, a listed infrastructure index, common direct and listed real estate indices, the authors test for short- and long-term inflation-hedging characteristics of these assets in the USA from 1991-2013. The authors employ the traditional Fama and Schwert (1977) framework, as well as Engle and Granger (1987) co-integration tests. Granger causality tests are further conducted, so as to gain insight into the short-run dynamics. Finally, shortfall risk measures are applied to investigate the inflation protection characteristics of the different assets over increasingly long investment horizons.


The empirical results indicate that in the short run, only direct infrastructure provides a partial hedge against inflation. However, co-integration tests suggest that all series have a long-run co-movement with inflation, implying a long-term hedge. The causality tests reveal reverse unidirectional causality – while real estate asset returns are Granger-caused by inflation, infrastructure asset returns seem to cause inflation. These findings further confirm that both assets represent a distinct asset class. Ultimately, direct infrastructure investments exhibit the most desirable inflation protection characteristics among the set of assets.

Research limitations/implications

This study only presents results based on a composite direct infrastructure index, as no sub-indices for sub-sectors are available yet.

Practical implications

Investors seeking assets that are sensitive to inflation and mitigate inflation risk should consider direct infrastructure investments in their asset allocation strategy.


This is the first study to examine the ability of direct infrastructure to assess inflation risk.



Wurstbauer, D. and Schäfers, W. (2015), "Inflation hedging and protection characteristics of infrastructure and real estate assets", Journal of Property Investment & Finance, Vol. 33 No. 1, pp. 19-44.



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Copyright © 2015, Emerald Group Publishing Limited

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