Integration of Stapled A-REIT, Stock and Bond Returns

Abstract

This paper examines stapled and traditional A-REITs, and their long-run relationships to common stocks, bonds, direct commercial real estate investments, and changes to consumer price inflation from December 1979 to June 2009. Stapled and traditional A-REIT indices are constructed from a sample of 71 A-REITs using the Standard and Poor’s index construction methodology. Using the Johansen (1990) cointegration analysis, long-run economic linkages among these assets are explored. A comparison of short-run adjustment processes under the vector autoregressive and vector error correction frameworks is also presented. The results from a dataset with monthly frequency show that stapled A-REITs are integrated with the overall stock market, whereas traditional A-REITs are integrated with the bond market. When examined on a quarterly basis, changes to direct commercial property returns were significant in the short-run adjustment processes for the overall A-REIT market.