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

Author

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  • Randy I. Anderson

    (University of Central Florida)

  • Vaneesha Boney

    (Daniels College of Business)

  • Hany Guirguis

    (Manhattan College)

Abstract

This paper demonstrates that the effects of unanticipated monetary policy changes (shocks) on REIT returns are asymmetric between the high- and low-variance regimes. We utilize a Markov regime-switching model with error correction terms 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, namely the current recession and recent crisis events. Furthermore, monetary shocks have about twice as much effect on REITs as they do on the SP500 index during high-variance regimes. This asymmetric response can be attributed to the Fed’s recession avoidance tactics, downward price rigidity, and the external financing premium. Given their unique regulatory and operating characteristics, REITs are an important and independent test case for ongoing research into the impact of monetary shocks.

Suggested Citation

  • Randy I. Anderson & Vaneesha Boney & Hany Guirguis, 2012. "The Impact of Switching Regimes and Monetary Shocks: An Empirical Analysis of REITs," Journal of Real Estate Research, American Real Estate Society, vol. 34(2), pages 157-182.
    • Handle: RePEc:jre:issued:v:34:n:2:2012:p:157-182
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    Citations

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    Cited by:

    1. Coën, Alain & Lefebvre, Benoit & Simon, Arnaud, 2018. "International money supply and real estate risk premium: The case of the London office market," Journal of International Money and Finance, Elsevier, vol. 82(C), pages 120-140.
    2. Viktoriya Lantushenko & Edward Nelling, 2020. "Active Management in Real Estate Mutual Funds," The Journal of Real Estate Finance and Economics, Springer, vol. 61(2), pages 247-274, August.
    3. Huang, MeiChi & Wu, Chu-Hua & Cheng, I-Shan, 2021. "A truly global crisis? Evidence from contagion dependence across international REIT markets," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    4. Viktoriya Lantushenko & Edward Nelling, 2017. "Institutional Property-Type Herding in Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 54(4), pages 459-481, May.
    5. Sercan Demiralay & Erhan Kilincarslan, 2024. "Uncertainty Measures and Sector-Specific REITs in a Regime-Switching Environment," The Journal of Real Estate Finance and Economics, Springer, vol. 69(3), pages 545-584, October.
    6. Salami, Monsurat Ayojimi & Tanrıvermiş, Harun & Tanrıvermiş, Yesim, 2024. "Influence of Ukraine invasion by Russia on Turkish markets," The Journal of Economic Asymmetries, Elsevier, vol. 29(C).
    7. Chyi Lin Lee & Simon Stevenson & Ming‐Long Lee, 2018. "Low‐frequency volatility of real estate securities and macroeconomic risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(S1), pages 311-342, November.

    More about this item

    JEL classification:

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

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