Hedging against Inflation: A study of Russian real estate funds

For an investor inflation has always caused problems since it eatsaway portfolio returns, reducing the purchasing power. Russia hasbeen fighting high inflation for the last two decades primarily due tothe economic restructuring from central planning to a free marketeconomy, raising the price levels. Historically property has been regardedas a good hedge against inflation and multiple research studiessupport this assumption. The Russian market for real estate hasgrown significantly over the last decade and is very interesting froma investor perspective.

Purpose: The purpose of this thesis is to determine whether Russian Real Estate Funds are an effective investment tool in a portfolio to hedge against inflation.


1  Introduction
1.1  Background
1.2  Problem Discussion
1.3  Research Question(s)
1.4  Purpose
1.5  Delimitations
1.6  Literature Search
1.7  Disposition of the Thesis
2  Frame of Refrence
2.1  Real estate as an asset class
2.2  Inflation
2.3  Hedging
2.4  Expected- and Actual return
2.5  Correlation
2.6  Moving Average
2.7  Regression analysis
2.8  The Russian Real Estate Market
2.9  Previous Studies
3  Methodology
3.1  Quantative vs. Qualitative research
3.2  Inductive vs. Deductive approach
3.3  Secondary data
3.4  The Research Approach
3.4.1  Data Collection – Stage I
3.4.2  Portfolio Construction – Stage II
3.4.3  Attaining Expected and Unexpected inflation – Stage III
3.4.4  Fama & Schwerts regression model – Stage IV
3.4.5  Estimating Auto Correlation – Stage IV
3.4.6  The Durbin – Watson test – Stage IV
3.4.7  Statistical testing
3.5  Timeframe
3.6  Critique of chosen method
3.6.1  Reliability
3.6.2  Validity
4  Empirical Findings and Analysis
4.1  Portfolio return
4.2  Correlation between Observed inflation and nominal return
4.3  Attaining Expected and Unexpected Inflation
4.3.1  GKO OFZ Russian T-Bills
4.3.2  Moving Average
4.3.3  Choosing the Optimal Expected & Unexpected Inflation
4.4  Fama & Schwert Regression
5  Conclusion
6  Reflections & Final Discussion
6.1  Criticism
6.2  Further Studies

Author: Persson, Anders,Olsson, Fredrik,Ösmark, Joathan

Source: Jönköping University

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