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Use of Derivatives by Australian Property Funds

Abstract Property derivatives as a financial tool have gained increasing attention by practitioners in recent years. However, there is relatively little evidence on the patterns of use and the property funds ‘ attitudes with respect to derivatives. Therefore, this study seeks to address this shortfall and aims to examine the application of derivatives by Australian property funds. A survey of Australian property fund managers was undertaken. The results show that different types of property funds have exhibited various patterns regarding the use of derivatives. The results also reveal that large property funds are more likely to use derivatives. The motivation factors (namely to reduce cash flows volatility and hedging currency risk) and risk factors (development of internal control and complicated accounting procedures) for using derivatives have also been identified. In addition, significant differences are found between the perceptions of derivative users and non-users. The findings have offered some insights into the knowledge base of property investors towards derivatives.