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An Anatomy of the Interrelationship between Equity and Mortgage REITs

Author

Listed:
  • J. Andrew Hansz

    (Old Dominion University)

  • Wikrom Prombutr

    (California State University)

  • Ying Zhang

    (Fairfield University.)

  • Tingyu Zhou

    (Concordia University)

Abstract

We investigate the long- and short-term interrelationships between equity and mortgage real estate investment trusts (REITs) by focusing on decomposed income and appreciation components. We find that the previously documented long-term cointegration relation between equity and mortgage REIT prices stems exclusively from their income components and subsequently, the appreciation components contribute nothing to such a long-term relationship. We also find that the previously documented short-term causal relation between equity and mortgage REIT returns is due to the causality that runs from the appreciation returns of equity REITs to those of mortgage REITs while their income returns do not lead to causality. Lastly, we show that the income returns of both equity and mortgage REITs are influenced by the same equity market factor while their appreciation returns are responsive to different macroeconomic factors, which explain the heterogeneous performance between them.

Suggested Citation

  • J. Andrew Hansz & Wikrom Prombutr & Ying Zhang & Tingyu Zhou, 2017. "An Anatomy of the Interrelationship between Equity and Mortgage REITs," International Real Estate Review, Global Social Science Institute, vol. 20(3), pages 287-324.
  • Handle: RePEc:ire:issued:v:20:n:03:2017:p:287-324
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    More about this item

    Keywords

    Equity REITs; Mortgage REITs; Income Component; Appreciation Component; Cointegration; Causality;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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