Abstract
This study contributes to the existing literature by combining the multiple methods to clarify the influence of the macroeconomic factors on the real estate investment trust (REIT) index in three Asian countries. The authors, first, use an autoregressive distributed lag (ARDL) bounds test to find that a long-run equilibrium exists between the REIT index and the interest rate, inflation rate, and stock index for China and Singapore. The authors, then, analyze the long- and short-run elasticity of the macroeconomic variables on the REIT index. Finally, using the Granger non-causality test, the authors demonstrate that a unidirectional relationship, in which inflation-rate shifts cause REIT index changes, exists in Japan and Singapore and that a wealth effect, in which stock index movements cause REIT index changes, exists in Singapore. The findings have economic implications for investors seeking to gain from REITs using macroeconomic factors. Keywords: REITs, macroeconomic factor, ARDL bounds test, ARDL long-run model, error-correction model, Granger non-causality test. JEL Classification: C22, G11, L85, D53, C58, F14
Highlights
Compared with real estate stocks, real estate investment trusts (REITs) can diversify risk by acquiring varied investment portfolios and can demonstrate a stable investment return
Gration are reported in Table 36.6 The results for the Akaike information criterion (AIC) and s Bayesian criterion (SBC) consistently demonstrate that the computed F-statistic for the relationships between the examined macroeconomic variables and the REIT index were greater than the critical upper bound values at the 5% and 10% levels of significance for China and Singapore, whereas the computed F-statistic did not exceed the critical upper bound values at any level of significance for Japan
These results indicate that cointegration relationships exist between the examined macroeconomic variables and the REIT index for China and Singapore over our sample period, but no similar longrun equilibrium exists for Japan
Summary
Compared with real estate stocks, real estate investment trusts (REITs) can diversify risk by acquiring varied investment portfolios and can demonstrate a stable investment return. REIT is like an indicator of securitized real estate, especially nonresidential real estate (NRRE). REIT, a small share of the total stock market capitalization, provides us with a simple indicator of the “market valuation” of NRRE (see Chang et al, 2011; Davis and Zhu, 2005). Chang et al (2011) propose that the underlying assets of REITs are mostly commercial real estate such as office buildings, shopping centers, and warehouses. Davis and Zhu (2005) find that the results for residential real estate are consistent with those for commercial real estate. Several studies have been done to demonstrate how NRRE behave. Chen and Leung (2008) show that residential real estate (RRE) and NRRE Granger-cause each other in both Japan and Hong Kong. Davis and Zhu (2005) find
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