Asymmetric Inflation Hedge of Housing Return: A Nonlinear Vector Correction Approach

Transcription

1 Asymmerc Inflaon Hege of Housng Reurn Asymmerc Inflaon Hege of Housng Reurn: A Nonlnear Vecor Correcon Aroach Kuan-Mn Wang * Dearmen of Fnance Overseas Chnese Insue of Technology Chao Kwang Roa Tachung 47 Tawan Yuan-Mng Lee Dearmen of Fnance Dwan College of Managemen 87- Nanshh L Maou Tawan Thanh-Bnh Nguyen Th Dearmen of Accounng Chaoyang Unversy of Technology 68 Jfong E. Roa Wufong Townsh Tachung Couny 4349 Tawan Absrac Conclusons of as works on he nflaon hegng ably of real esae nvesmen are no conssen. The reason for hs erlexy mgh be he neglec of searaon beween hgh an low sae of nflaon whch has a grea nfluence on emrcal resuls. In orer o examne he nflaon hegng effecveness of real esae wh Tawanese monhly housng reurns an nflaon hs aer uses he nflaon as he hreshol varable o creae he nonlnear vecor correcon moel ha ves he nflaon raes no hgh an low regme. We fn robus evence ha when nflaon raes are hgher han.83% hreshol value housng reurns are able o hege agans nflaon an oherwse hey are unable. Usng new mehoology o scover new mlcaons s man conrbuon of hs suy. Keywors: Housng rces; Inflaon; nonlnear VECM ; Tawan * Corresonng auhor.

2 Asymmerc Inflaon Hege of Housng Reurn Inroucon The economc leraure has yele a large number of n-eh sues concernng he relaonsh beween real esae reurns an nflaon. I s a commonlace cognzance ha real esae reurns hege agans nflaon when he rase n real esae reurns coul comensae for he coss ae by he shrnk n wealh an urchasng ower. Srmans an Srmans 987 Brueggeman Chen an Thboeau 984 Mles an McCue 984 Harzell e al. 987 Gyourko an Lnneman 988 an Bon an Seler 998 early use he U.S. samles o scover ha real esae nvesmen effecvely oges nflaon. Furhermore Real Esae Invesmen Truss REITs are foun o have he same characersc by Goebel an Km 989 Park Mullneaux an Chen 99 Chen Henersho an Saners 99 an Lu Harzell an Hoesl 997. However Lu an So an Glascock Lu an So recenly argue ha REITs are unable o recly hege agans nflaon. The exlanaons for he nrec nflaon hege resene by Lu an So are he surous regresson an he mroer causaly. The correlaon beween hese wo varables herefore shoul be esablshe hrough oher economc varables. Earler sues emloye many smle as well as veeran sascal moels o exlore he nflaon hegng ably of real esae. Smle mehos such as he ornary leas squares OLS an he caal asse rcng moel CAPM whch are use by Fama an Schwer 977 an Chen an Tzang 988. Aferwar oher mehos such as he vecor error correcon moel VECM use by Lu an So Glascock Lu an So Aergs 3 an he vecor auoregressve VAR ale by Glascock Lu an So an Ewng an Payne 5 aear on real esae forum. The conclusons can be roughly groue no hree man caegores; he nvesmen on real esae or REITs can hege agans nflaon he nvesmen on real esae or REITs can no hege agans nflaon 3

3 Asymmerc Inflaon Hege of Housng Reurn he relaon beween real esae reurns an nflaon s lnke by some macroeconomc varables or roxy varables. However all above-menone sues ulze he lnear moels o examne he relaon beween real esae reurns an nflaon revealng he sregar of nonlnear relaonsh. We conser ha he hgh or low sae of nflaon robably nfluence he nflaon hegng effecveness of real esae. Thus he nflaon hege of real esae shoul be asymmerc along saes of nflaon. Ignorng hs characersc mgh lea o he mroer moels whch consequenly nver he nflaon hegng ably of real esae or REITs. The major obsacles o research on he nflaon hege of Tawan REITs have been he lack of aa an he ncomlee resonse o he ynamc ajusmen of real esae rces because Tawan REITs are sll a an early sage of oeraon. Ths suy herefore uses he housng nex o nvesgae f Tawan housng reurns are able o hege agans s nflaon. In hs suy he Johanson conegraon es s frs emloye o exlore he sable long-run relaonsh beween housng nex an consumer rce nex. Afer verfyng hs relaonsh he nflaon s aoe as he hreshol varable o esmae he arorae hreshol value whch ves nflaon raes no wo regmes hgh an low nflaon. Fnally he relaonsh beween housng reurns an he nflaon uner each regme s examne wh he nonlnear VECM. The key ssues we aress n hs suy are he avalably of asymmerc nflaon hege of housng reurn whn nonlnear VECM framework an he evence ha hel housng marke arcans beer evaluae he real esae nvesmen. Our man research quesons are: wheher he relaonsh beween housng nex an consumer rce nex s sable an long-run wheher he shor-run relaonsh beween housng reurns an nflaon s 3

4 Asymmerc Inflaon Hege of Housng Reurn nonlnear 3 how he housng reurns hege agans nflaon uner hgh an low nflaon resecvely when nonlnear relaon exss. The emrcal resuls emonsrae ha here exss a conegraon beween housng nex an consumer rce nex when allowng for he nfluence of me ren. The mac of consumer rce nex on housng nex s osve an he effec of me ren on housng nex s negave. Emloyng nflaon rae as he hreshol varable we scover ha he nonlnear ajusmen beween housng reurns an nflaon emerges when he nflaon varable elays eros n oher wors he nflaon hege of housng reurn consequenly s asymmerc along nflaon saes hgh or low. Accorng o he causal analyss on shor-run ajusmen when he nflaon raes are greaer han he hreshol value he effec of nflaon on housng reurns s osve whch means ha he housng reurns are able o hege agans he nflaon. However when he nflaon raes are equal or lower han he hreshol value he effec of nflaon on housng reurns s no sgnfcan or he housng reurns are unable o hege agans he nflaon. The aer s organze as follows. In Secon I we resen he research move an urose. Secon II brefly revews he leraures relang o he nflaon hege of real esae n Tawan as well as abroa. Secon III nrouces he research roceure. Secon IV escrbes he aa an analyzes he emrcal resuls. Fnally Secon IV conclues. Relae Leraure Usng he Nonlnear Moel Wh regar o mehoology he exsng sues on REITs early use he ornary leas squares OLS an recenly aly he mulvarae moels such as he vecor auoregressve VAR 4

5 Asymmerc Inflaon Hege of Housng Reurn an he vecor error correcon moel VECM whch hel mrove grealy he esmaons an he emrcal resuls as well as resen new fnngs. Focusng on he nflaon hegng ably of REITs Lu an So ulze he vecor error correcon moel VECM an four varables- REITs reurn CPI Feeral fun rae nusral roucon nex- o examne he relaonsh among U.S. REITs reurns real roucon moneary olcy an nflaon. They conclue ha he relaon beween nflaon an REITs reurns s no he rec causaly an ha REITs reurns are unable o comensae for nflaon. Smlarly Glascock Lu an So emloy VECM an hese four varables o scrunze he nflaon hege of REITs along wh he nfluence of real roucon an moneary olcy. They fn ha he relaon beween REITs reurns an exece nflaon or unexece nflaon are nrec. They furher show ha he negave relaon beween REITs an nflaon s merely effece by he moneary olcy. Usng he error correcon vecor auoregressve ECVAR moel Aergs 3 analyses he ynamc effecs of secfc macroeconomc varables.e. housng loan raes nflaon an emloymen on he rce of new houses sol n Greece. Ths suy ncaes ha he housng loan rae s he varable havng he hghes exlanaory ower over he varaon of real housng rces followe by nflaon an emloymen. The generalze mulse resonse analyss s ale by Ewng an Payne 5 o exlore he relaonsh beween REITs reurn an macroeconomc varables such as moneary olcy efaul rsk remum real ouu growh an nflaon over he ero 98-. They fn ha he volaly of Feeral fun rae an he efaul rsk remum are he eermnans nfluencng REITs reurns. Beses moneary olcy real ouu growh an nflaon cause he lower exece reurn an efaul rsk remum nuces he hgher exece reurn. 5

6 Asymmerc Inflaon Hege of Housng Reurn Aonally relang o Tawan real esae Ln an La 3 use he me seres analyss o comare wo savng moels he raonal one an he one wh force savng over he ero from 98 o. Ther hree man fnngs are: Frs he negave wealh effec of housng rce arecaon on savng s smaller n he force savng moel han n he raonal savng moel. Seconly by he esmae ECMs gnorng he mac of housng rce arecaon on force savng he see of shor-run ajusmen n oal savng woul be sgnfcanly slower. Thr for forecasng urose he forecas errors n ECM of he force savng moel are smaller han ha n he oal savng moel. The above menone suy ceera arbus jus ales he lnear moel whle real esae aa havng he asymmerc ajusmen seems o be gnore. To relensh he exsng sues wh nonlnear aroach we use a new economerc meho o creae an asymmerc moel an rove new fnng on nflaon hege of housng reurn. Nonlnear Vecor Error Correcon Moel Tong 978 an Tong an Lm 98 evelo he hreshol auoregressve TAR moel whch s base on an omal hreshol value o ve he ynamc saus of one economc ncaor no wo regmes. The ynamc values of hreshol varable are comare o he hreshol value sough by he Gr Search so as o be groue no wo caegores; hgher an lower equal regme. The conce of Gr Search aoe by TAR s seekng for ossble srucural breaks accorng o he sum square of error SSE. The convenonal unvarae hreshol auoregressve moel oes no allow for he ynamc effec beween varables. Therefore he hreshol vecor auoregressve TVAR 6

7 Asymmerc Inflaon Hege of Housng Reurn moel mus be use o f for aa when ealng wh mulvarae analyss. TVAR moel s he exen of TAR moel eveloe by Tong 978 n VAR moel. Aong he bvarae VAR moel he relaonsh beween housng reurns an nflaon s as follows: r = α = β = α r β r = = = α β ε ε where he housng reurn r = log HPI / HPI HPI s he housng nex. The nflaon = log CPI / CPI CPI s he consumer rce nex. α an β are arameers ε ε are error erms. When he resence of fferen regmes s foun VAR moel can be rewren as TVAR moel: Ζ = A ΦΖ I q > γ A Φ Ζ I q > γ ε Ζ Φ r = α = β Α... α... β α = β α β... α... β A α = β Φ α = β... α... β α β... α... β where s he lag lengh q s he hreshol varable s he elay arameer γ s he hreshol value error erm * * ε = ε ε ~ an E ε Ω = E ε Ω = σ Ω s he nformaon se n ero - I s he arge funcon of regmes. I s assume ha I q > γ = f here exs regmes an I q γ = oherwse. Before esmang TVAR moel he exsence of hreshol effec n equaon mus be verfe. The null hyohess s he lnear VAR moel an he alernave hyohess s 7

8 Asymmerc Inflaon Hege of Housng Reurn he nonlnear TVAR moel. The aroach of Tsay 998 s use o es for he lneary of { moel: suose here are seres y x q } =..n where y s he eenen varable x s he neenen varable q s he hreshol varable. Le be he lag lengh be he elay an be known. Tesng for he resence of nonlneary of y he moel framework s: y = X Φ ε = h... n 3 where h=maxq X = y... y x... x has kqv menson. Φ enoes he marx of coeffcens. If he null hyohess of lneary comes rue he esmaon of equaon 3 s val oherwse nval. A boom-u ermuaon s mae for he values of hreshol varable le he h small elemen be z le be he me nex of z he arrange auoregresson ARR s re-arrange accorng o he boom-u ermuaon of hreshol varable values: y = X Φ ε =... n h 4 Tsay ulzes he recursve leas squares meho RLS o aan he recve resual of ARR n orer o bul he es sasc base on he sanarze recve resual. Then he recve resual an he sanarze recve resual resecvely are: eˆ m ˆ m / η m = e m /[ X m V m X m ] 5 V m = [ = m y ˆ X X Φˆ m ] X m The recursve resual s: 8

9 Asymmerc Inflaon Hege of Housng Reurn h n m l w X l l l = Ψ =... ˆ η 6 Tsay aos C es sasc o seek for he ra of nonlneary. The null hyohess H :Ψ= ncaes he lneary of y he alernave hyohess H : Ψ= shows he nonlneary of y he egree of freeom s he ch-square srbuon of k kqv [ ] [ ] { } ] ln[e e ln S S qv k m h n C = 7 = = = = h n m l l l h n m l l l w w m h n S m h n S ˆ ˆ / ˆ ˆ / η η 8 If C sasc rejecs he null hyohess of lneary he nex se s o ge he wo arameers he elay an he hreshol valueγ. Suosng ha q an regmes are known he hreshol varable z eermnes he aearance of moel wh wo regmes: Φ > Φ = γ γ z If a X z If a X y / / 9 If γ an are gven he above equaon can be regare o have wo neenen lnear regressve moels Φ an are obane as follows: / ˆ ˆ ˆ ˆ * * k n X y X y y X X X = = Φ φ φ γ γ ˆ * γ = Φ Φ n enoes he observaons n regme k reresens he menson of X an sasfes k<n. The resual sum of square s: ] ˆ [ k n race S S S S γ γ γ γ γ = = 9

10 Asymmerc Inflaon Hege of Housng Reurn γ an are obane from he equaon arg mn S γ an γ R. Afer γ aanng he omal hreshol value γ an he elay he bes fe TVAR moel wll be bul. Neverheless f conegraon or sable long-run relaonsh beween varables s even he hreshol vecor error correcon moel TVECM wll be emloye o carry ou he esmaon nsea. To ajus he shor-run sequlbrum TVECM relave o TVAR jus has one screancy n he error correcon erm ECT. Hence he equaon can be rewren as follows: Ζ = A ω ECT A ω ECT Φ Φ Ζ Ζ I q > γ I q > γ ε The equaon can be furher srea as: r α = α = = α r α r = α = ˆ α ω ECT ω ECT - - > γ γ 3 β β r β ω ECT - > γ = = = 4 β β r β ω ECT - γ = = where ECT s he correcon erm of ero - n long-run equlbrum: ECT = HPI θ θ CPI θ 5 reresens he me ren. θ θ θ enoes he long-run arameers of conegraon equaon. ω ω ω an ω are he arameers of error correcon erm ECT beng namely he ajusng coeffcens.

11 Asymmerc Inflaon Hege of Housng Reurn In orer o confrm he causaly of shor-run ynamc effec we emloy he Wal coeffcen es o check he causaly beween varables srong exogeney. Accorng o he bvarae TVECM n equaon 3 an 4 he null hyohess of causaly es s H α = =... H : α = : along wh he uer lower regme exressng ha oes no Granger cause r. The rejecon of hs null hyohess means ha nflaon Granger cause reurn. Observng coeffcen an = α = α we are able o eermne he neracon beween varables whn he uer lower regme o be osve or negave. When he null hyohess s rejece an he coeffcen sum s osve ncang he nflaon hegng effecveness of housng reurn n he shor run. Beses he es of null hyohess H : β = =... H : = β shows ha r oes no Granger cause. The rejecon of hs null hyohess means ha housng reurns o no Granger cause nflaon. Accorng o coeffcen an = β = β we can asceran ha he effec of housng reurns on nflaon whn he uer lower regme s negave or osve n he shor run. In aon we coul verfy f he consumer rce nex has he weak exogeney on housng nex hrough he sgnfcance of ajusng coeffcensω ω ω an ω of error correcon erm uner fferen regmes. Base on he causaly es an he lag arameer we examne f nvesng n Tawan housng coul ncely avo he nflaon. Emrcal Resuls Our analyss s base on he monhly aa of housng nex HPI an consumer rce nex

12 Asymmerc Inflaon Hege of Housng Reurn CPI. The housng nex s obane from Tawan Sny Realy Commercal Brokerage an he consumer rce nex s obane from Tawan AREMOS aabase for he ero from July 99 o June 6. The samle nclues 8 observaons whch are use for examnng he nflaon hegng effecveness of Tawan housng nvesmen. When carryng ou he es as well as he esmaon boh varables are forme n naural logarhm. Ths suy manly ulzes he nonlnear moel o es for he causaly beween ynamc housng rces an consumer rces. The emrcal rocess s roceee n wo ses. Frs he un roo es s ale o housng nex an consumer rce nex for enfyng her saonary. I s hen followe by he conegraon es. Secon If he conegraon beween varables s clarfe he rejecon of lnear hyohess allows he nonlnear vecor error correcon moel or TVECM o be esmae for examnng he causaly beween varables. If he conegraon or he long-run relaonsh beween varables oes no exs an he nonlneary s sgnfcan he causaly beween varables s ese wh he nonlnear vecor auoregressve moel or TVAR. The ADF un roo es resuls are reore n Table. The ADF regressve equaon s searae no wo ADF sub-equaons; one nclues consan an he oher one nclues consan an me ren. The omal lag lengh s selece accorng o he Akake nformaon creron AIC. The es resuls show ha he ranks of boh varables are I. Table resens he resuls of omal lag-lenghs for whch we selec he maxmum of 8 eros for esng. In orer o have alernave selecons for he omal lag we aly fve crera nclung LR sequenal mofe LR es sasc FPE Fnal recon error AIC Akake nformaon creron SC Schwarz nformaon creron

13 Asymmerc Inflaon Hege of Housng Reurn an HQ Hannan-Qunn nformaon creron. These crera exce LR choose he longes lag as ero whch seems oo shor for monhly aa o reson o he causaly beween housng rces an consumer rces no conformng he nuon on economcs. Furhermore he lag ero of eermne by LR creron no only ncely forms one yearly varaon allyng wh he economc mlcaon bu also wes ou he seasonal nerference of monhly aa self. Therefore hs suy aos he lag lengh of o es for conegraon as well as o esmae moel. We reor he resuls of Johanson conegraon es n Table 3. Accorng o hese resuls he relaon beween housng nex an consumer rce nex can no ge r of he long-run me ren. Ths aer hence consers nvolvng he me ren n long-run equaon when carryng ou he es on conegraon. The null hyohess s: H * θ : Πy ς Bx = α β y ρ ρ α 6 In equaon 6 y enoes he enogenous varable x enoes he exogenous varable θ s he conegraon vecor reresens he me ren α s he eermnsc erm guaranyng α =. Π = αβ s he conegraon vecors. α We use wo sasc mehos he Trace of Johanson mehoology an he Maxmum-egenvalue λ for esng: = τ k λ log ˆ race τ = T λ 7 λ τ τ = T log ˆ λ 8 max τ where λˆ s he esmae value of he characersc roo also calle egenvalue obane from he esmae Π marx. T s he number of usable observaons. When he arorae 3

14 Asymmerc Inflaon Hege of Housng Reurn values of τ are clear hese sascs are smly referre o as λ race an λ max. Uner he 5% sgnfcan level he conegraon es resuls shown n able 3 rove evence ha here s a leas one conegraon beween housng nex an consumer rce nex hs long-run relaon s exresse as follows: HPI = CPI 9 I s nforme by equaon 9 ha here s a sable long-run relaonsh beween housng nex an consumer rce nex. Alhough he housng rces fall along wh mes ye sll resen a small sable rase revealng he reserve caably for he funamenal value of housng. Parcularly once he consumer rce nex rses he housng nex grows oo. However he rsng rao s no equal ncang ha he ncrease of consumer rce s jus arly reflece n housng reurns n oher wors housng reurns arly hege agans nflaon. Because of he resence of conegraon when bulng he vecor error correcon moel o es for causaly beween housng nex an consumer rce nex we a he error correcon erm n he moel for analyzng he ajusmen of shor-run sequlbrum an furher confrmng he ynamc relaon beween hese wo varables. Beses n orer o realze he exsence of nonlneary he lnear es s ale o each mono-regme moel o verfy he omal framework aoe. Durng he rocess of lnear es we follow he esng moe of Tsay 998 whose null hyohess s he lnear VECM an alernave hyohess s he nonlnear VECM. The varan rae of consumer rces - known as nflaon s use as he hreshol varable. Table 4 shows he resuls of lnear es reresene by he -value of sasc 4

15 Asymmerc Inflaon Hege of Housng Reurn Ch-square es. When he hreshol varable nflaon elays eros = he esng resul sgnfcanly rejec he lnear hyohess confrmng he nonlneary of moel. Ths henomenon mles ha he ynamc volaly of consumer rce nex n eros before reflecs he asymmerc ajusmen beween housng nex an consumer rce nex. Therefore ulzng jus he lnear moel o exlore he relaonsh beween wo varables mgh lea o base resuls. Accorng o he es resuls n Table 4 he wo regmes hgh an low nflaon are searae base on he hreshol value of nflaon. - beng hgher han he hreshol value belongs o he uer regme - beng lower equal han he hreshol value belongs o he lower regme. The man urose of usng he regressve hreshol moel s o seek for he facor nfluencng he benchmark of snc regmes. By he esmaons of TVECM can be observe f he change of consumer rce nex has effec on he change of housng nex a any me. The esmaons of TVECM are: r.4.36 R =.93 =..546 R =.86 = = ˆ α.65 LM = ARCH.f = =.6 ˆ α r r LM =. = = ˆ α ˆ α.5ect.33ect ARCH.f = =.6 >.83%.83% 5

16 Asymmerc Inflaon Hege of Housng Reurn.3 ˆ β ˆ r β. ECT - >.83% = = R =.3 LM =.5.47 ARCH.f = =.9. =.5 ˆ β ˆ r β.45ect -.83% = =..5 R =.35 LM =.4.83 ARCH.f = =.3.84 Equaon an are he esmae resuls of TVECM. The omal hreshol value also known as he waershe s.83%. When >.83% he nflaon sae belongs o he uer regme referre o as he hgh nflaon ero. When.83% he nflaon sae belongs o he lower regme referre o as he low nflaon ero. Furher fgures n arenheses enoe he -values resule by he LM seral correconal es an he ARCH heeroskeascy es. Analyzng he effec of error correcon erms uner fferen regmes we scover n equaon ha he arameer ˆ ω =. 5 wh % sgnfcan level s obvously hgher han showng he resence of weak exogeney n nfluence of nflaon on housng reurns uner hgh nflaon ero n oher wors he nflaon nfluences housng reurns hrough he shor-run ajusmen. Dfferenly n equaon he arameer ˆ ω =. 45 s sgnfcanly hgher han ncang he exsence of weak exogeney n nfluence of nflaon on housng reurns uner low nflaon ero n oher wors he changes of housng rces nfluence he nflaon hrough he shor-run ajusmen. - - Table 5 reors he resuls of causaly es on nonlnear moel. The resence of hreshol value mles ha he reson of consumer rces o housng rces s he ajusmen relaon of asymmerc momenum. Accorngly as soon as he consumer 6

17 Asymmerc Inflaon Hege of Housng Reurn rces have he screan egree n varaon hgher equal an lower han.83% he neracon beween consumer rces an housng rces has he change. As he ajusmen of shor-run momenum s asymmerc he causaly uner he uer an lower regme s no conssen. There s only he one-way causal relaonsh from nflaon o housng reurns beng sgnfcan uner hgh nflaon. Ths suy s base on he sum of coeffcen values o eermne he nfluence recon of relaon beween varables. I s foun n he uer regme ha he mac of he changes n consumer rce nex on housng reurns s osve an he mac of he varaon n housng nex on nflaon s negave ye no secfcally sgnfcan. Parcularly uner he lower regme he effec of he changes n consumer rce nex on housng reurns s osve an he effec of he varaon n housng nex on nflaon s negave however hese causales are no obvous. The above resuls rove a eal nsgh no he nflaon hegng ably of housng reurns arcularly n he conex of nonlnear moel. Due o he asymmerc ajusmen of housng reurns relave o consumer rce varaon here exss an ncomlee ass-hrough from consumer rces o housng rces n he long run. Therefore n he shor run when he rse n housng rces s cause by he broa margn of ncrease n consumer rce nex he eman for housng rases jus because of he execaon of nvesors raher han he nee of habans. We fn he evence ha nvesng n Tawan housng can arly hege agans nflaon only when he ncreasng margn of monhly nflaon rae s hgher han.83%. 7

18 Asymmerc Inflaon Hege of Housng Reurn Conclusons Ths suy ams o emrcally nvesgae he nflaon hegng ably of Tawan housng nvesmen. The mehoology allows for he ossble resence of nonlnear ajusmen beween housng reurns an nflaon as well as he me ren of long-run relaonsh. We se u he hreshol vecor error correcon moel TVECM for examnng he nflaon hege. The emrcal fnngs show ha nvesng n Tawan housng can only arly hege agans nflaon when he nflaon rae s hgher han.83%. Ths suy relave o he relae leraures has some nnovaons an conrbuons: wh regar o he research movaon hs s he frs aer usng he nonlnear moel o exlore he nflaon hegng effecveness of Tawan housng nvesmen wh regar o he mehoology ours ffers from he moels use by he exng sues such as he lnear VAR an VECM whch jus focus on he symmerc relaon beween varables an overlook he asymmerc effec. The fnngs of hs suy o hoe o rove Tawan Governmen wh some ersecves on he characersc of housng eman he eermnaon of eole on he ossble caal coss he evaluaon of real esae an asse allocaon. When regulang real esae olces he asymmerc ajusmen beween housng rce changes an nflaon shoul be arcularly aken care hs coul nfluence he oenal exernal coss generae by he nflaon hege. Along wh ncreasng rces nflaon heavly ressures on Tawan economy ay by ay. Our fnngs also o hoe o suly a valuable suggeson on valuaon an eermnaon of one housng nvesmen for nvesors consumers an banks. On he acaemc ersecve we emloy he mehoology an moel ha have never been use before n he same oc an conrbue new scoveres o he exsng leraures. 8

19 Asymmerc Inflaon Hege of Housng Reurn References Aergs N. 3. Housng Prces an Macroeconomcs Facor: Prosecs whn he Euroean Moneary Unon Inernaonal Real Esae Revew Bon M. an Seler M Real Esae Reurns an Inflaon: An Ae Varable Aroach Journal of Real Esae Research Brueggeman W. B. Chen A. H. an Thboeau T. G Real Esae Invesmen Funs: Performance an Porfolo Conseraons Real Esae Economcs Chan K.C. Henersho P. H. an Saners A. B. 99. Rsk an Reurn on Real Esae: Evence from Equy REITs The Journal of he Amercan Real Esae an Urban Economcs Journal of Fnance Chen K. an Tzang D Ineres-Rae Sensvy of Real Esae Invesmen Truss Journal of Real Esae Research Ewng B. T. an Payn J. E. 5. The Resonse of Real Esae Invesmen Trus Reurns o Macroeconomc Shocks Journal of Busness Research Fama E. an Schwer W Asse Reurns an Inflaon Journal of Fnancal Economcs Glascock J. Lu C. an So R.. Furher Evence on he Inegraon of REIT Bon an Sock Reurns Journal of Real Esae Fnance an Economcs Glascock J. Lu C. an So R.. REITs Reurns an Inflaon: Perverse or Reverse Causaly Effecs Journal of Real Esae Fnance an Economcs Goebel P. R. an Km K. S Performance Evaluaon of Fne-Lfe Real Esae Invesmen Truss Journal of Real Esae Research Gyourko J. an Lnneman P Owner-occue Homes Income-Proucng Proeres an REITs as Inflaon Heges: Emrcal Fnngs Journal of Real Esae Fnance an Economcs Harzell D. J. Heckman an M. Mles 987. Real Esae Reurns an Inflaon Journal of Amercan Real Esae an Urban Economcs Assocaon Ln C. C The Relaonsh beween Rens an Prces of Owner-Occue Housng n Tawan Journal of Real Esae Fnance an Economcs Ln C. C. an Ln S. J An Esmaon of Elasces of Consumon Deman an Invesmen Deman for Owner-Occue Housng n Tawan Inernaonal Real Esae Revew -5. Ln C. C. an La Y. F. 3. Housng Prce Morgage Paymen an Savng Behavor n 9

20 Asymmerc Inflaon Hege of Housng Reurn Tawan: A Tme Seres Analyss Asan Economc Journal Lu C. H. Harzell D. J. an Hoesl M. E Inernaonal Evence on Real Esae Secures as an Inflaon Hege Real Esae Economcs Lu C. an So R.. The Relaonsh Beween REITs Reurns an Inflaon: A Vecor Error Correcon Aroach Revew of Quanave Fnance an Accounng Mles M. anmccue T Commercal Real Esae Reurns Journal of he Amercan Real Esae an Urban Economcs Assocaon Nelson C. R. an Schwer G. W Shor-Term Ineres Raes as Precors of Inflaon: On Tesng he Hyohess ha he Real Rae of Reurn s Consan Amercan Economc Revew Nelson D. 99. Cononal Heeroskeascy n Asse Reurns: A New Aroach Economerca Park J.Y. Mullneaux D. J. an Chen I. 99. Are REITs Inflaon Heges? Journal of Real Esae Fnance an Economcs Srmans G. F. an Srmans C. F Real Esae Reurns: The Hsorcal Persecve of Real Esae Reurns Journal of Porfolo Managemen Tong H On a Threshol Moel n C.H. Chen e. Paern Recognon an Sgnal Processng Amseran: Sjhoff & Noorhoff -4. Tong H. an Lm K. S. 98. Threshol Auoregressons Lm Cycles an Daa Journal of he Royal Sascal Socey wh scusson Tsay R. S Tesng an Moellng Mulvarae Threshol Moels Journal of he Amercan Sascal Assocaon

21 Asymmerc Inflaon Hege of Housng Reurn Table : ADF Un Roo Tes Levels Frs fferences Varables Consan Consan lus Tme ren Consan Consan lus Tme ren HPI ** -3.3** CPI -3.77** ** -6.9** HPI enoes he housng rce nex CPI enoes he consumer rce nex. The regresson of ADF es covers wo sub-regressons; one nclues he consan he oher nclues he consan an he me ren. The omal lag s selece accorng o he Akake nformaon creron AIC. ** reresens he 5% sgnfcan level. The 5% crcal values are -.87 an

22 Asymmerc Inflaon Hege of Housng Reurn Table : Tess for Lags Lags LR FPE AIC SC HQ NA ** ** 6.9** ** ** LR reresens he sequenal mofe LR es sasc FPE exresses he fnal recon error AIC s he Akake nformaon creron SC enoes he Schwarz nformaon creron HQ ncaes he Hannan-Qunn nformaon creron. ** enoes he 5% sgnfcan level.

23 Asymmerc Inflaon Hege of Housng Reurn Table 3: Tes for Conegraon VAR lags = Null Hyohess λ race ess = λ max ess = = Alernave Hyohess Sascs 5% Crcal Value τ τ > 9.5** 5.87 τ τ > τ τ = τ τ = 5..5 The lag lengh s eermne by he sequenal LR es. **enoes he 5% sgnfcan level. 3

24 Asymmerc Inflaon Hege of Housng Reurn Table 4: Tes for Lneary ** **.4** The above values are he -values of Ch square es for lneary. ** enoes he 5% sgnfcan level. 4

25 Asymmerc Inflaon Hege of Housng Reurn Table 5: Resuls of Causaly Tes Uer Regme Deenen Null Hgh nflaon ero Varable Hyohess Sum of coeffcens Ch-square es Lower Regme Low nflaon ero Sum of Ch-square coeffcens es r H : r = ˆ α = *** = α = ˆ H : r ˆ = β = ˆ = β = The nflaon s use as he hreshol varable he omal hreshol value γ =.83% he lag lengh of TVECM = an he hreshol varable omal lag =. r resens he null hyohess ha he eferre consumer rce changes nflaon can no exlan he curren housng reurns r ncaes he null hyohess ha he eferre housng reurns can no exlan he curren consumer rce changes nflaon. The values n. are he -values of Ch-square sasc of Jon es ***enoes he % sgnfcan level. 5