Advanced Search
MyIDEAS: Login to save this paper or follow this series

Monetary Policy, Term Structure and Asset Return: Comparing REIT, Housing and Stock

Contents:

Author Info

  • Chang, Kuang-Liang
  • Chen, Nan-Kuang
  • Leung, Charles Ka Yui

Abstract

This paper confirms that a regime-switching model out-performs a linear VAR model in terms of understanding the system dynamics of asset returns. Impulse responses of REIT returns to either the federal funds rate or the interest rate spread are much larger initially but less persistent. Furthermore, the term structure acts as an amplifier of the impulse response for REIT return, a stabilizer for the housing counterpart under some regime, and, perhaps surprisingly, almost no role for the stock return. In contrast, GDP growth has very marginal effect in the impulse response for all assets.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/23514/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23514.

as in new window
Length:
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:pra:mprapa:23514

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: monetary policy; yield curve; REITs; house prices; Markov Regime Switching;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Glascock, John L & Lu, Chiuling & So, Raymond W, 2002. "REIT Returns and Inflation: Perverse or Reverse Causality Effects?," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 24(3), pages 301-17, May.
  2. Jin-Chuan Duan & Ivilina Popova & Peter Ritchken, 2002. "Option pricing under regime switching," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 2(2), pages 116-132.
  3. Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper, Federal Reserve Bank of New York 8907, Federal Reserve Bank of New York.
  4. Marvin Goodfriend, 2007. "How the World Achieved Consensus on Monetary Policy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(4), pages 47-68, Fall.
  5. Dennis R. Capozza & Paul J. Seguin, 1998. "Managerial Style and Firm Value," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 26(1), pages 131-150.
  6. Marvin Goodfriend & Robert G. King, 2005. "The Incredible Volcker Disinflation," Boston University - Department of Economics - Macroeconomics Working Papers Series, Boston University - Department of Economics WP2005-007, Boston University - Department of Economics.
  7. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, Elsevier, vol. 41(7), pages 1375-1401, July.
  8. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 253-257, May.
  9. Su Han Chan & Wai-Kin Leung & Ko Wang, 2005. "Changes in REIT Structure and Stock Performance: Evidence from the Monday Stock Anomaly," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 33(1), pages 89-120, 03.
  10. Thomas Sargent & Noah Williams & Tao Zha, 2004. "Shocks and Government Beliefs: The Rise and Fall of American Inflation," NBER Working Papers 10764, National Bureau of Economic Research, Inc.
  11. Driffill, John & Sola, Martin, 1998. "Intrinsic bubbles and regime-switching," Journal of Monetary Economics, Elsevier, Elsevier, vol. 42(2), pages 357-373, July.
  12. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
  13. Campbell, John, 1987. "Stock Returns and the Term Structure," Scholarly Articles 3207699, Harvard University Department of Economics.
  14. Mishkin, Frederic S., 1990. "What does the term structure tell us about future inflation?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 25(1), pages 77-95, January.
  15. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 19(4), pages 67-92, Fall.
  16. Robert G. King & Mark W. Watson, 1997. "Testing long-run neutrality," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sum, pages 69-101.
  17. Colin Lizieri & Stephen Satchell, 1997. "Property company performance and real interest rates: a regime-switching approach," Journal of Property Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(2), pages 85-97, January.
  18. Arturo Estrella & Mary R. Trubin, 2006. "The yield curve as a leading indicator: some practical issues," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 12(Jul).
  19. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
  20. Kenneth A. Froot & Maurice Obstfeld, 1992. "Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach," NBER Working Papers 2835, National Bureau of Economic Research, Inc.
  21. Cochrane, John H., 2005. "Financial Markets and the Real Economy," Foundations and Trends(R) in Finance, now publishers, vol. 1(1), pages 1-101, July.
  22. Arturo Estrella, 2005. "Why Does the Yield Curve Predict Output and Inflation?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(505), pages 722-744, 07.
  23. Schwert, G.W., 1989. "Stock Volatility And The Crash Of '87," Papers, Rochester, Business - General 89-01, Rochester, Business - General.
  24. Charles Ka Yui Leung, 2005. "Equilibrium Correlation of Asset Price and Return," Departmental Working Papers, Chinese University of Hong Kong, Department of Economics _175, Chinese University of Hong Kong, Department of Economics.
  25. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, Econometric Society, vol. 48(1), pages 1-48, January.
  26. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  27. K.C. Chan & Patric H. Hendershott & Anthony B. Sanders, 1990. "Risk and Return on Real Estate: Evidence from Equity REITs," NBER Working Papers 3311, National Bureau of Economic Research, Inc.
  28. Bond, Shaun A & Patel, Kanak, 2003. "The Conditional Distribution of Real Estate Returns: Are Higher Moments Time Varying?," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 26(2-3), pages 319-39, March-May.
  29. Ling, David C & Naranjo, Andy, 1997. "Economic Risk Factors and Commercial Real Estate Returns," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 14(3), pages 283-307, May.
  30. Yin-wong Cheung & Ulf G. Erlandsson, 2005. "Exchange Rates and Markov Switching Dynamics," Working Papers, Hong Kong Institute for Monetary Research 052005, Hong Kong Institute for Monetary Research.
  31. Francq, C. & Zakoian, J. -M., 2001. "Stationarity of multivariate Markov-switching ARMA models," Journal of Econometrics, Elsevier, Elsevier, vol. 102(2), pages 339-364, June.
  32. Liu, Crocker H & Mei, Jianping, 1992. "The Predictability of Returns on Equity REITs and Their Co-movement with Other Assets," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 5(4), pages 401-18, December.
  33. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050 Elsevier.
  34. Fama, Eugene F., 1990. "Term-structure forecasts of interest rates, inflation and real returns," Journal of Monetary Economics, Elsevier, Elsevier, vol. 25(1), pages 59-76, January.
  35. Marc Simpson & Sanjay Ramchander & James Webb, 2007. "The Asymmetric Response of Equity REIT Returns to Inflation," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 34(4), pages 513-529, May.
  36. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
  37. Steven H. Ott & Timothy J. Riddiough & Ha-Chin Yi, 2005. "Finance, Investment and Investment Performance: Evidence from the REIT Sector," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 33(1), pages 203-235, 03.
  38. C. Goodhart, 2001. "What Weight Should be Given to Asset Prices in the Measurementof Inflation?," DNB Staff Reports (discontinued), Netherlands Central Bank 65, Netherlands Central Bank.
  39. Glascock, John L & Lu, Chiuling & So, Raymond W, 2000. "Further Evidence on the Integration of REIT, Bond, and Stock Returns," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 20(2), pages 177-94, March.
  40. Dennis R. Capozza & Paul J. Seguin, 1999. "Focus, Transparency and Value: The REIT Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 27(4), pages 587-619.
  41. Don Bredin & Gerard O’Reilly & Simon Stevenson, 2007. "Monetary Shocks and REIT Returns," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 35(3), pages 315-331, October.
  42. Ling T. He, & James. R. Webb & Neil Myer, 2003. "Interest Rate Sensitivities of REIT Returns," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 6(1), pages 1-21.
  43. Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, Elsevier, vol. 25(1), pages 23-49, November.
  44. Chan, Su Han & Erickson, John & Wang, Ko, 2002. "Real Estate Investment Trusts: Structure: Structure, Performance, and Investment Opportunities," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195155341, October.
  45. Ferson, Wayne E, 1989. " Changes in Expected Security Returns, Risk, and the Level of Interest Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 44(5), pages 1191-1217, December.
  46. Plosser, Charles I. & Geert Rouwenhorst, K., 1994. "International term structures and real economic growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 33(1), pages 133-155, February.
  47. Bollen, Nicolas P. B. & Gray, Stephen F. & Whaley, Robert E., 2000. "Regime switching in foreign exchange rates: Evidence from currency option prices," Journal of Econometrics, Elsevier, Elsevier, vol. 94(1-2), pages 239-276.
  48. Lawrence Benveniste & Dennis R. Capozza & Paul J. Seguin, 2001. "The Value of Liquidity," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 29(4), pages 633-660.
  49. Asbjørn T. Hansen & Rolf Poulsen, 2000. "A simple regime switching term structure model," Finance and Stochastics, Springer, Springer, vol. 4(4), pages 409-429.
  50. Christian Hott & Pierre Monnin, 2008. "Fundamental Real Estate Prices: An Empirical Estimation with International Data," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 36(4), pages 427-450, May.
  51. Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, American Finance Association, vol. 46(2), pages 529-54, June.
  52. Ko Wang & John Erickson & George Gau & Su Han Chan, 1995. "Market Microstructure and Real Estate Returns," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 23(1), pages 85-100.
  53. Goodhart, Charles, 2001. "What Weight Should Be Given to Asset Prices in the Measurement of Inflation?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 111(472), pages F335-56, June.
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 in new window

Cited by:
  1. Huang, MeiChi, 2014. "Bubble-like housing boom–bust cycles: Evidence from the predictive power of households’ expectations," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 54(1), pages 2-16.
  2. Paul Goebel & David Harrison & Jeffrey Mercer & Ryan Whitby, 2013. "REIT Momentum and Characteristic-Related REIT Returns," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 47(3), pages 564-581, October.
  3. Simo-Kengne, Beatrice D. & Balcilar, Mehmet & Gupta, Rangan & Reid, Monique & Aye, Goodness C., 2013. "Is the relationship between monetary policy and house prices asymmetric across bull and bear markets in South Africa? Evidence from a Markov-switching vector autoregressive model," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 161-171.
  4. Kuang-Liang Chang & Nan-Kuang Chen & Charles Ka Yui Leung, 2012. "In the shadow of the United States: the international transmission effect of asset returns," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 121, Federal Reserve Bank of Dallas.
  5. Cheng, Lichao & Jin, Yi, 2013. "Asset prices, monetary policy, and aggregate fluctuations: An empirical investigation," Economics Letters, Elsevier, Elsevier, vol. 119(1), pages 24-27.
  6. Nan-Kuang Chen & Yu-Hsi Chou & Jyh-Lin Wu, 2013. "Credit Constraint and the Asymmetric Monetary Policy Effect on House Prices," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 18(4), pages 431-455, October.
  7. Ahdi N. Ajmi & Vassilios Babalos & Fotini Economou & Rangan Gupta, 2014. "Real Estate Markets and Uncertainty Shocks: A Variance Causality Approach," Working Papers, University of Pretoria, Department of Economics 201436, University of Pretoria, Department of Economics.
  8. Chong, Terence Tai Leung & Ding, Haoyuan & Park, Sung Y, 2014. "Nonlinear Dependence between Stock and Real Estate Markets in China," MPRA Paper 57774, University Library of Munich, Germany.
  9. Chang, Kuang Liang & Chen, Nan Kuang & Leung, Charles Ka Yui, 2011. "The Dynamics of Housing Returns in Singapore: How Important are the International Transmission Mechanisms?," MPRA Paper 32255, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:23514. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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