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Evaluation of the Resilience of Real Estate and Property Stocks to Inflation and Interest Rate Uncertainty: Implementation of Two Asset Pricing Models

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  • Nurdina Nurdina

    (Department of Accounting, Faculty of Economics and Business, Universitas Brawijaya, Malang 65145, Indonesia
    Department of Accounting, Faculty of Economics and Business, Universitas PGRI Adi Buana, Surabaya 60234, Indonesia)

  • Nurkholis Nurkholis

    (Department of Accounting, Faculty of Economics and Business, Universitas Brawijaya, Malang 65145, Indonesia)

  • Noval Adib

    (Department of Accounting, Faculty of Economics and Business, Universitas Brawijaya, Malang 65145, Indonesia)

  • Sari Atmini

    (Department of Accounting, Faculty of Economics and Business, Universitas Brawijaya, Malang 65145, Indonesia)

Abstract

Property stocks are an attractive alternative investment for investors who want passive income. Investors’ decisions focus not only on maximizing returns but also on reducing risk. This study examines the extent to which macroeconomic factors affect stock performance by comparing the effectiveness of the Fama–French five-factor model (5FF) and Fama–French seven-factor model (7FF) in estimating returns. This study also verifies Fisher’s theory in the context of property and real estate stocks. The research data used are property and real estate stocks in the Indonesian capital market. The data are processed using the OLS estimation method, and Akaike’s Information Criterion (AIC) is used to choose the optimal model. The results show that property and real estate stocks in Indonesia with negative profitability at all quantiles can hedge inflation and interest rates. However, the interest rates are not the only factor affecting the market risk. The 7FF model is better at explaining the variability of stock portfolio returns. This research makes an essential contribution to the financial literature in Indonesia, particularly in the context of portfolio management in the property and real estate sector.

Suggested Citation

  • Nurdina Nurdina & Nurkholis Nurkholis & Noval Adib & Sari Atmini, 2024. "Evaluation of the Resilience of Real Estate and Property Stocks to Inflation and Interest Rate Uncertainty: Implementation of Two Asset Pricing Models," JRFM, MDPI, vol. 17(12), pages 1-18, November.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:12:p:530-:d:1527108
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    References listed on IDEAS

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    1. Irwan Adi Ekaputra & Bambang Sutrisno, 2020. "Empirical tests of the Fama-French five-factor model in Indonesia and Singapore," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 10(1), pages 85-111.
    2. Solnik, Bruno, 1983. "The Relation between Stock Prices and Inflationary Expectations: The International Evidence," Journal of Finance, American Finance Association, vol. 38(1), pages 35-48, March.
    3. Guo, Bin & Zhang, Wei & Zhang, Yongjie & Zhang, Han, 2017. "The five-factor asset pricing model tests for the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 84-106.
    4. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    5. Chung-Yim Yiu & Chuyi Xiong & Ka-Shing Cheung, 2022. "An Extended Fama-French Multi-Factor Model in Direct Real Estate Investing," JRFM, MDPI, vol. 15(9), pages 1-14, September.
    6. Gultekin, N Bulent, 1983. "Stock Market Returns and Inflation: Evidence from Other Countries," Journal of Finance, American Finance Association, vol. 38(1), pages 49-65, March.
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