Abstract
This study seeks to investigate the dynamic impact of commercial real estate loan delinquency (CRELD) rate on the real estate market performance proxied by REIT returns. The results from the analysis of quarterly data from 1991 Q1 to 2011 Q4 show that the value-weighted REIT returns significantly drop immediately following CRELD rate shock. CRELD rate Granger-causes the decline in REIT returns. The reverse causation from REIT returns to CRELD rate is not evident. The variance decomposition results show that CRELD rate forecasts about 14% of REIT returns from the two-quarter to eight-quarter horizons.
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