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Macroeconomic risks and REITs returns: A comparative analysis

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  • Kola, Katlego
  • Kodongo, Odongo

Abstract

We study the relationship between the excess returns of REITs and volatilities of macroeconomic factors in developing markets (Bulgaria and South Africa) and a ‘benchmark’ developed market (USA). As expected, our results generally indicate that conditional volatilities of macroeconomic risks, extracted through the GARCH (1,1) process, are time-varying. GARCH coefficients are largely significant for excess returns and retained principal components implying conditional time-varying volatility. We use the GMM to examine the linkage between volatilities of macroeconomic variables and REITs returns. The general result here is that macroeconomic risk cannot explain excess returns on REITs. However, we document a positive relationship between variability in REITs returns and the real economy for the US. US REITs portfolio managers and investors should be wary of fluctuations in these variables as they may accentuate volatility in REITs returns.

Suggested Citation

  • Kola, Katlego & Kodongo, Odongo, 2017. "Macroeconomic risks and REITs returns: A comparative analysis," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1228-1243.
    • Handle: RePEc:eee:riibaf:v:42:y:2017:i:c:p:1228-1243
    DOI: 10.1016/j.ribaf.2017.07.061
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    Cited by:

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    2. Benjamin Kwakye & Chan Tze Haw, 2020. "Interplay of the Macroeconomy and Real Estate: Systematic Review of Literature," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 262-271.
    3. Chioma Okoro & Marie Mangwi Ayaba, 2023. "Research Trends and Directions on Real Estate Investment Trusts’ Performance Risks," Sustainability, MDPI, vol. 15(6), pages 1-20, March.

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    More about this item

    Keywords

    REITs returns; Macroeconomic risks; Conditional volatility;
    All these keywords.

    JEL classification:

    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
    • R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other

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