Not all REITs are alike: modelling the dynamic connectedness of sectoral REITs and the US yield curve

We model the dynamic connectedness between key sectoral REITs and the yield curve’s constituents. We employ both return and volatility of REITs and conduct analysis in static as well as time-varying framework. Our static analysis reveals Office REITs as the net spillover transmitter to the system, whiles Mortgage, Timber, and Infrastructure REITs are net recipients of return and volatility spillovers. We document that despite the high interdependencies between sectoral REITs, their response to return and volatility spillovers is heterogenic. Our findings divulge low idiosyncratic spillovers in sectoral REITs, suggesting that controlling the transmission and admission of exogeneous shocks need to be paramount to both investors and policymakers. Our dynamic analysis discloses the consistency of Industrial, Mortgage, and Timber REITs as diversifiers (safe havens) in tranquil (tumult) trading periods. We document contagion in the connectedness of sectoral REITs during crises periods. Therefore, timely policy actions in stressed market conditions are recommended to lessen the degree of effect on fundamental cross-sector linkages through contagion. We discuss the implications of our findings for portfolio management and market regulation.