IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v58y2021ics0275531921000787.html
   My bibliography  Save this article

Responses of REITs index and commercial property prices to economic uncertainties: A VAR analysis

Author

Listed:
  • Gholipour, Hassan F.
  • Tajaddini, Reza
  • Farzanegan, Mohammad Reza
  • Yam, Sharon

Abstract

We use market participants’ perceived uncertainty to investigate the response of real estate investment trusts index (REITs Index) and commercial property prices to shocks in economic uncertainty. Using US quarterly data and applying a vector autoregression (VAR) model, our results show that an increase in market participants’ perceived uncertainty leads to a significant drop in the REITs Index and commercial property prices. In addition, we show that the REITs Index responds quicker to the uncertainty shocks than the commercial property prices. Our findings provide important implications for investors.

Suggested Citation

  • Gholipour, Hassan F. & Tajaddini, Reza & Farzanegan, Mohammad Reza & Yam, Sharon, 2021. "Responses of REITs index and commercial property prices to economic uncertainties: A VAR analysis," Research in International Business and Finance, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921000787
    DOI: 10.1016/j.ribaf.2021.101457
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531921000787
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2021.101457?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bulan, Laarni & Mayer, Christopher & Somerville, C. Tsuriel, 2009. "Irreversible investment, real options, and competition: Evidence from real estate development," Journal of Urban Economics, Elsevier, vol. 65(3), pages 237-251, May.
    2. Vivek Ghosal & Yang Ye, 2015. "Uncertainty and the employment dynamics of small and large businesses," Small Business Economics, Springer, vol. 44(3), pages 529-558, March.
    3. Christopher R. Cunningham, 2007. "Growth Controls, Real Options, and Land Development," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 343-358, May.
    4. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, vol. 67(5), pages 1113-1156, September.
    5. Hassan F. Gholipour & Mary Elizabeth Dunkley, 2019. "Economic Policy Uncertainty and Household Financial Assets," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 65(2), pages 101-113.
    6. Dobson, S M & Goddard, J A, 1992. "The Determinants of Commercial Property Prices and Rents," Bulletin of Economic Research, Wiley Blackwell, vol. 44(4), pages 301-321, October.
    7. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 85-106.
    8. Rena Sivitanidou & Petros Sivitanides, 2000. "Does the Theory of Irreversible Investments Help Explain Movements in Office-Commercial Construction?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(4), pages 623-661.
    9. Xiuwen Chen & Xiaolei Sun & Jianping Li, 2020. "How does economic policy uncertainty react to oil price shocks? A multi-scale perspective," Applied Economics Letters, Taylor & Francis Journals, vol. 27(3), pages 188-193, February.
    10. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 391-415.
    11. Berg, Kimberly A. & Mark, Nelson C., 2018. "Measures of global uncertainty and carry-trade excess returns," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 212-227.
    12. Yuming Fu & Maarten Jennen, 2009. "Office Construction in Singapore and Hong Kong: Testing Real Option Implications," The Journal of Real Estate Finance and Economics, Springer, vol. 38(1), pages 39-58, January.
    13. Li, Xiang & Su, Dan, 2020. "How does economic policy uncertainty affect corporate debt maturity?," IWH Discussion Papers 6/2020, Halle Institute for Economic Research (IWH).
    14. Stolbov, Mikhail & Shchepeleva, Maria, 2020. "Systemic risk, economic policy uncertainty and firm bankruptcies: Evidence from multivariate causal inference," Research in International Business and Finance, Elsevier, vol. 52(C).
    15. Yu, Xiaoyu & Tao, Yida & Tao, Xiangming & Xia, Fan & Li, Yajie, 2018. "Managing uncertainty in emerging economies: The interaction effects between causation and effectuation on firm performance," Technological Forecasting and Social Change, Elsevier, vol. 135(C), pages 121-131.
    16. Kyle Jurado & Sydney C. Ludvigson & Serena Ng, 2015. "Measuring Uncertainty," American Economic Review, American Economic Association, vol. 105(3), pages 1177-1216, March.
    17. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 707-727.
    18. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
    19. Wang, Pengfei & Li, Xiao & Shen, Dehua & Zhang, Wei, 2020. "How does economic policy uncertainty affect the bitcoin market?," Research in International Business and Finance, Elsevier, vol. 53(C).
    20. Nikolaos Antonakakis & Rangan Gupta & Christophe Andre, 2015. "Dynamic Co-movements between Economic Policy Uncertainty and Housing Market Returns," Working Papers 201509, University of Pretoria, Department of Economics.
    21. Jae Sim & Egon Zakrajsek & Simon Gilchrist, 2010. "Uncertainty, Financial Frictions, and Investment Dynamics," 2010 Meeting Papers 1285, Society for Economic Dynamics.
    22. Omokolade Akinsomi, 2020. "How resilient are REITs to a pandemic? The COVID-19 effect," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 39(1), pages 19-24, July.
    23. Xiaoyu Yu & Yida Tao & Xiangming Tao & Fan Xia & Yajie Li, 2018. "Managing uncertainty in emerging economies: The interaction effects between causation and effectuation on firm performance," Post-Print hal-01989673, HAL.
    24. Johannes Strobel & Binh Nguyen Thanh & Gabriel Lee, 2020. "Effects of Macroeconomic Uncertainty and Labor Demand Shocks on the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(2), pages 345-372, June.
    25. Ozturk, Ezgi O. & Sheng, Xuguang Simon, 2018. "Measuring global and country-specific uncertainty," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 276-295.
    26. Nguyen, Canh Phuc & Le, Thai-Ha & Su, Thanh Dinh, 2020. "Economic policy uncertainty and credit growth: Evidence from a global sample," Research in International Business and Finance, Elsevier, vol. 51(C).
    27. Christou, Christina & Gupta, Rangan & Nyakabawo, Wendy, 2019. "Time-varying impact of uncertainty shocks on the US housing market," Economics Letters, Elsevier, vol. 180(C), pages 15-20.
    28. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    29. Adian,Ikmal & Doumbia,Djeneba & Gregory,Neil & Ragoussis,Alexandros & Reddy,Aarti & Timmis,Jonathan David, 2020. "Small and Medium Enterprises in the Pandemic : Impact, Responses and the Role of Development Finance," Policy Research Working Paper Series 9414, The World Bank.
    30. De Wit, Ivo & van Dijk, Ronald, 2003. "The Global Determinants of Direct Office Real Estate Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 26(1), pages 27-45, January.
    31. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, Decembrie.
    32. Sing, Tien-Foo & Patel, Kanak, 2001. "Evidence of irreversibility in the UK property market," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(3), pages 313-334.
    33. Ismailov, Adilzhan & Rossi, Barbara, 2018. "Uncertainty and deviations from uncovered interest rate parity," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 242-259.
    34. Chong, Terence Tai Leung & Liu, Hengliang, 2020. "How does the COVID-19 pandemic affect housing prices in China?," MPRA Paper 102103, University Library of Munich, Germany.
    35. Goodell, John W., 2020. "COVID-19 and finance: Agendas for future research," Finance Research Letters, Elsevier, vol. 35(C).
    36. Wang, Ziwei & Li, Youwei & He, Feng, 2020. "Asymmetric volatility spillovers between economic policy uncertainty and stock markets: Evidence from China," Research in International Business and Finance, Elsevier, vol. 53(C).
    37. A. Steven Holland & Steven H. Ott & Timothy J. Riddiough, 2000. "The Role of Uncertainty in Investment: An Examination of Competing Investment Models Using Commercial Real Estate Data," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(1), pages 33-64.
    38. Ewing, Bradley T. & Payne, James E., 2005. "The response of real estate investment trust returns to macroeconomic shocks," Journal of Business Research, Elsevier, vol. 58(3), pages 293-300, March.
    39. McKelvie, Alexander & Haynie, J. Michael & Gustavsson, Veronica, 2011. "Unpacking the uncertainty construct: Implications for entrepreneurial action," Journal of Business Venturing, Elsevier, vol. 26(3), pages 273-292, May.
    40. Huseyin Gulen & Mihai Ion, 2016. "Editor's Choice Policy Uncertainty and Corporate Investment," Review of Financial Studies, Society for Financial Studies, vol. 29(3), pages 523-564.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paul Anglin & Jianxin Cui & Yanmin Gao & Li Zhang, 2021. "Analyst Forecasts during the COVID-19 Pandemic: Evidence from REITs," JRFM, MDPI, vol. 14(10), pages 1-21, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tajaddini, Reza & Gholipour, Hassan F., 2021. "Economic uncertainty and business formation: A cross-country analysis," Journal of Business Venturing Insights, Elsevier, vol. 16(C).
    2. Wu, Ji & Yao, Yao & Chen, Minghua & Jeon, Bang Nam, 2020. "Economic uncertainty and bank risk: Evidence from emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 68(C).
    3. Gabriel P. Mathy, 2020. "How much did uncertainty shocks matter in the Great Depression?," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 14(2), pages 283-323, May.
    4. Chow Sheung-Chi & Cunado Juncal & Gupta Rangan & Wong Wing-Keung, 2018. "Causal relationships between economic policy uncertainty and housing market returns in China and India: evidence from linear and nonlinear panel and time series models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(2), pages 1-15, April.
    5. Arbatli Saxegaard, Elif C. & Davis, Steven J. & Ito, Arata & Miake, Naoko, 2022. "Policy uncertainty in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 64(C).
    6. Bulan, Laarni & Mayer, Christopher & Somerville, C. Tsuriel, 2009. "Irreversible investment, real options, and competition: Evidence from real estate development," Journal of Urban Economics, Elsevier, vol. 65(3), pages 237-251, May.
    7. Quader, Syed Manzur, 2023. "The interplay between uncertainty, managerial decision making, and firm value: Evidence from Bangladesh," Journal of Economics and Business, Elsevier, vol. 123(C).
    8. Morikawa, Masayuki, 2019. "Uncertainty over production forecasts: An empirical analysis using monthly quantitative survey data," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 163-179.
    9. Gang‐Zhi Fan & Ming Pu & Tien Foo Sing & Xiaoyu Zhang, 2022. "Risk aversion and urban land development options," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(3), pages 767-788, September.
    10. Abakah, Emmanuel Joel Aikins & Caporale, Guglielmo Maria & Gil-Alana, Luis Alberiko, 2021. "Economic policy uncertainty: Persistence and cross-country linkages," Research in International Business and Finance, Elsevier, vol. 58(C).
    11. Daniel Dejuán & Corinna Ghirelli, 2018. "Policy uncertainty and investment in Spain," Working Papers 1848, Banco de España.
    12. Favara, Giovanni & Gao, Janet & Giannetti, Mariassunta, 2021. "Uncertainty, access to debt, and firm precautionary behavior," Journal of Financial Economics, Elsevier, vol. 141(2), pages 436-453.
    13. de la Horra, Luis P. & Perote, Javier & de la Fuente, Gabriel, 2021. "Monetary policy and corporate investment: A panel-data analysis of transmission mechanisms in contexts of high uncertainty," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 609-624.
    14. Hardik A. Marfatia & Christophe André & Rangan Gupta, 2022. "Predicting Housing Market Sentiment: The Role of Financial, Macroeconomic and Real Estate Uncertainties," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 23(2), pages 189-209, May.
    15. Clapp, John M. & Bardos, Katsiaryna Salavei & Wong, S.K., 2012. "Empirical estimation of the option premium for residential redevelopment," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 240-256.
    16. Baker, Scott R. & Davis, Steven J. & Levy, Jeffrey A., 2022. "State-level economic policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 132(C), pages 81-99.
    17. Xiangyuan Meng & Haoge Guo & Jie Li, 2023. "Economic policy uncertainty and corporate investment: evidence from China," Economic Change and Restructuring, Springer, vol. 56(6), pages 4491-4529, December.
    18. Hou, Deshuai & Chan, Kam C. & Dong, Manru & Yao, Qiuge, 2022. "The impact of economic policy uncertainty on a firm’s green behavior: Evidence from China," Research in International Business and Finance, Elsevier, vol. 59(C).
    19. Fabio Bertolotti & Massimiliano Marcellino, 2019. "Tax shocks with high and low uncertainty," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(6), pages 972-993, September.
    20. Kundu, Srikanta & Paul, Amartya, 2022. "Effect of economic policy uncertainty on stock market return and volatility under heterogeneous market characteristics," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 597-612.

    More about this item

    Keywords

    Commercial property; REITs; COVID-19; Uncertainty; VAR;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921000787. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.