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Research Seminars & Workshops @ IRES


Dr Seah Kiat Ying
Department of Real Estate, National University of Singapore

Inflation Illusion and Institutional Ownership in REITs


Date:

13 April 2011 (Wednesday)

Time:

3.00 pm - 5.00 pm

Venue:

RMI Executive Seminar Room
21 Heng Mui Keng Terrace, Level 4


Abstract

This paper is an exploratory study of the implication of the inflation illusion hypothesis on institutional tilting. It joins the literature which looks at the rationality of institutional investment behavior. The paper relies on the premise of the Fisher effect - that correctly priced assets are good inflation hedges and that during times of high inflation, the prices of these assets will be bid up. If the market suffers from inflation illusion, then holders of these rationally-priced securities will liquidate their positions and tilt toward underpriced assets. I focus my study on the real estate investment trust (REIT) market. I find that institutions do in fact tilt their portfolios away from REITs that are good hedges in periods of high unexpected inflation holding constant other reasons that may influence institutional ownership (e.g. size, liquidity, momentum, etc.). Furthermore, these assets are less likely to be mispriced as institutional ownership decreases with the amount of mispricing in these securities.


For full paper, download herehttp://www.rst.nus.edu.sg/research/images/pdf1.GIF


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