On the connection between international REITs and oil markets: The role of economic policy uncertainty

Abstract

The interconnection between the international Real Estate Investment Trust (REITs) and oil markets has attracted much interest among investors, policymakers, practitioners, and academics. The focus of this paper is to examine the role of US economic policy uncertainty on the connection between international REITs and oil markets. The following findings are perceptible from our analyses. First, the spillover tests show a significantly high level of connection between the two markets. Second, the spillover results also reveal that the oil market is a net receiver of the shocks, while most REIT markets are net transmitters of the volatility. Third, the BDS test shows strong evidence that nonlinearity is crucial when examining policy uncertainty's role in affecting the interactions between REITs and oil markets. Fourth, the non-parametric causality-in-quantile test confirms that the connectedness between economic policy uncertainty and the link between REITs and oil markets is stronger, mostly around the lower and median quantiles. These results have important policy implications for policymakers and market participants.