The Impact of Switching Regimes and Monetary Shocks: An Empirical Analysis of REITs

    Authors

    R. I. Anderson; V. Boney;H. Guirguis

    Comments

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    Abbreviated Journal Title

    J. Real Estate Res.

    Keywords

    INTEREST-RATES; VARIANCE DECOMPOSITION; POLICY TRANSMISSION; BUSINESS-CYCLE; CREDIT CHANNEL; TIME-SERIES; RETURNS; STOCK; US; INFLATION; Business, Finance; Economics

    Abstract

    This paper demonstrates that the effects of unanticipated monetary policy changes (shocks) on real estate investment trust (REIT) returns are asymmetric between the high- and low-variance regimes. A Markov regime-switching model with error correction terms is used to quantify the impact of monetary shocks on seven specialized REIT indices in a sample of daily returns from 1997 to 2008. The relationship between monetary shocks and REIT returns is negative, but this relationship is significant primarily during periods of high variance. Furthermore, monetary shocks have about twice as much effect on REITs as they do on the S&P 500 Index during high-variance regimes. This asymmetric response can be attributed to the Federal Reserve's recession avoidance tactics, downward price rigidity, and the external financing premium. REITs are an important and independent test case for research into the impact of monetary shocks.

    Journal Title

    Journal of Real Estate Research

    Volume

    34

    Issue/Number

    2

    Publication Date

    1-1-2012

    Document Type

    Article

    Language

    English

    First Page

    157

    Last Page

    181

    WOS Identifier

    WOS:000306152200002

    ISSN

    0896-5803

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