Real Estate Investment Trusts Index Research Articles

Intraday financial markets’ response to U.S. bank failures

The arrival of an unfavorable event in financial markets, such as the announcement of a bank failure, generally causes reactions from investors, price changes, and higher market volatility. The present paper investigates the impact of three U.S. banks (Silicon Valley Bank, Signature Bank, and First Republic Bank) collapses on financial markets: price behavior and market volatility. We use intraday data to control and lessen the impact of confounding effects, two different event study approaches to check for the robustness of the results, several U.S. indices, and a digital asset to extend the financial markets. Our results suggest that the reactions of financial markets to the failure of these banks are mixed. The returns analyses indicate that the banks’ collapses result in higher market volatilities than positive news in the case of Bitcoin and Dow Jones Equity Real Estate Investment Trust Index. At the same time, the U.S. Dollar Index shows the reverse. The mixed results could be possibly due to the inconsequential market share of these banks in the United States banking sector. The major implication of the findings is that policymakers have to take serious actions, such as examinations of portfolio holdings, to safeguard financial stability and to prevent undesirable financial markets’ volatility.

Predicting the returns of the US real estate investment trust market: evidence from the group method of data handling neural network

PurposeThe Group Method of Data Handling (GMDH) neural network has demonstrated good performance in data mining, prediction, and optimization. Scholars have used it to forecast stock and real estate investment trust (REIT) returns in some countries and region, but not in the United States (US) REIT market. The primary goal of this study is to predict the US REIT market using GMDH and then compare its accuracy with that derived from the traditional prediction method.Design/methodology/approachTo forecast the return on the US REIT index, this study used the GMDH neural network and the generalized autoregressive conditional heteroscedasticity (GARCH) model. In this test, the training samples, testing samples, and kernel functions of the GMDH model are controlled to investigate their impact on the accuracy of the machine learning approach. Corresponding experiments were performed using the GARCH model, and the accuracies of these two approaches were compared.FindingsCompared with GARCH, GMDH’s accuracy is much higher, indicating that the machine learning approach can provide a highly accurate prediction of REIT prices. The size of the training samples and the kernel functions in the GMDH model affect the accuracy of the prediction results. In particular, the kernel function has a significant impact on prediction accuracy. The linear and linear covariance kernel functions are simple to train and yield accurate predictions, whereas the quadratic function is difficult to train. Even with small training samples, GMDH can outperform GARCH in prediction accuracy.Research limitations/implicationsAlthough GMDH shows good performance in predicting the US REIT return, it is still a black-box model, and the algorithm is difficult for financial analysts to develop and customize. The data used in this study come from the US REIT market, which is the world’s largest and most liquid market.Social implicationsThis research shows that the GMDH model outperforms the GARCH model in forecasting REIT returns. Hence, investors can use the machine learning approach to make more accurate predictions of the target REITs’ returns and thus better investment decisions. Future investors and researchers may use GMDH to forecast the performance of REITs in other markets.Originality/valueThis is the first study to apply the GMDH neural network to the US REIT market and determine the impact of the two factors on its performance. For example, this research first discusses the impact of kernel functions on the US REIT market using the GMDH neural network. It also includes short-term daily prediction returns that were not previously considered, making it a valuable reference for financial industry analysts.

Will Real Estate Fail When Interest Rates Rise?

The current yield on the 10-year T-bond bottomed out at 49.9 bps in 2020 and has since risen to 316.7 bps, a 535% proportionate increase. Consequently, 7–10-year and 10–20-year US Treasuries delivered total returns of −15.0% and −27.7%, respectively. Institutional and retail investors are actively seeking bond substitutes in response to a fear that the US economy has embarked on a multidecade-long era defined by ever-increasing interest rates. Commercial real estate is the first bond substitute they are considering. Unfortunately, data since 1971 strongly support the conclusion that publicly traded real estate investment trusts (REITs) carry a positive interest rate loading of sufficient size that their use as a bond substitute is likely to make the situation worse. In contrast, data since 1977 support the conclusion that private direct ownership of institutional bricks and mortar carries no such interest rate factor loading. Carried to its logical conclusion, these observations suggest the exploration of something like a 130/30 portfolio (130% long the NFI-ODCE Index and 30% short the FTSE Nareit All REITs Index).

Gayrimenkul Yatırım Ortaklıkları Endeksi ve Sektör Endeks Getirisinin (XGMYO) Belirleyicileri: Türkiye Sermaye Piyasaları Örneği

This paper evaluates real estate investment trust (REIT) market and reviews the financial determinants of real estate investment trusts index. To this end, the study finds an answer to the research question of whether REIT index (XGMYO) is significantly affected by inflation, USD/TL parity and interest rates. Data is retrieved from Borsa-Istanbul and Central Bank of Turkey and covers the period from 2011 and 2021 (monthly data). Findings of the quantitative analysis are as follows; XGMYO has two regimes. Deposit (Index Return) with different lags is the most effective variable in both regimes. While CPI-Inflation is statistically significant in Regime 2, it is not significant in Regime 1. Similar to inflation, housing-loans-interest rate (applicable to clients) statistically has impact on XGMYO in Regime 2, but it has no statistically significant impact on Regime 1.

REITs impact on typical investment portfolio – further evidence of the sector split importance

The REIT (Real Estate Investment Trust) returns demonstrate a time-varying linear correlation with various equity indexes, therefore they are fit for multi-asset portfolio enhancement. On the one hand, each REIT sector is characterised by a unique set of return properties, and on the other, companies within those sectors remain homogenous. The aim of this research is twofold: firstly, to verify the earlier studies on how adding REITs to mixed equities/bonds portfolios affects their risk and return characteristics, and secondly, to contribute to these studies by examining the impact of adding different REIT sectors to such portfolios over a relatively long and more up-to-date sample, i.e. the period of 1990–2019. The results indicate that, in contrast to what some previous studies suggested, adding the REIT index exposure leads to a limited portfolio enhancement only. More significant and consistent effects can be achieved by the inclusion of individual REIT sectors in an investment portfolio. Apartment REITs offered diversification benefits across the entire spectrum in all the periods, while Industrials were useful across the curve in 1990s and 2010s. Self-storage exposure, on the other hand, improved the investment portfolio performance in each of the studied decades. In general, it was enough for investors who strived for portfolio improvement over the three decades between 1990 and 2019 to have a small portion of their Value holdings replaced with the REIT sector exposure to obtain a positive impact on both the returns and the risk.

Nonlinear Short-Run Adjustments between REITs and Stock Markets in the USA and Australia

Abstract This study examines whether nonlinear co-integration exists between real estate investment trusts (REITs) and corresponding stock markets in the United States and Australia. Moreover, we employ the smooth-transition, vector-error correction model (STVECM) including the generalized autoregressive conditional heteroskedasticity (GARCH) model to separately explore the adjustment efficiencies of the short-run REITs and corresponding stock returns in dynamics. The empirical results demonstrate that there is a nonlinear co-integration with structural breaks between the equity and mortgage REITs and stock markets in the US as well as between the REITs and stock markets in Australia. When large positive and negative deviations of STVECM exist, the speed of equilibrium adjustment of the S&P 500 index is greater than that of the Mortgage REITs index. Additionally, the higher the equilibrium adjustment of Australian/US REITs index, the greater the reversion of Australian/US REITs index. Meanwhile, this study is also interested in finding out whether the REIT indices in the US or Australia would serve as a leading indicator for price movements. The result findings may provide a good reference for the investors’ investment engaged in the areas of these two countries. JEL Classification: C22, D53, G14, L85. Keywords: REITs, STVECM, Nonlinear Granger causality, GARCH.

The Interactions between Covid-19 Cases in Turkey, the VIX Index and Major Sector Indexes

"The COVID-19 pandemic, which started in China in December 2019, caused the great economic recession for about ten years, threatening health, devastating economic activity, and hurting well-being and jobs. The COVID-19 crisis is one the largest globally public health and economic crisis. The COVID-19 pandemic has affected economic activities across various sectors, including tourism, supply of medical equipment, global supply chains, electronic and financial markets, energy, and food services, while also significantly impacting social activities. This paper investigates the impact of S&P 500 Volatility Index (VIX) on returns of the six sector indexes, informatics index, food index, real estate investment trust index, textile index, tourism index and Bank index from 11 March 2020 to 28 May 2021 in Turkey. Using the VAR analysis method, the results of the empirical study showed that the responses of the other indexes except for Bank index to VIX index are negative at the first. Contrary to these reactions, Bank index return reacts positively to the VIX index."

The Factors Affecting the Market Value/Book Value and Profitability of REITs in Turkey

Increasing income level and the desire to live a more comfortable life in countries with an increasing population are constantly driving the demand for real estate. Real estate investment trusts (REITs) are capital market institutions that can invest in real estate, real estate-based capital market instruments, real estate projects, real estate-based rights and capital market instruments. In addition, they establish partnerships to realize specific projects, engage in other permitted activities, and are organized by the Capital Market Law in Turkey. In this study, the fixed effects panel data regression model is used to determine the financial indicators that affect the market value and profitability of the Turkey REITs that are traded in the Borsa İstanbul REITs Index. The study covers 21 REIT companies. The data set is in the period between 2010:Q1 to 2019:Q4 in the analyses. The results show that return on assets (ROA), return on equity (ROE), asset turnover, leverage, equity multiplier and current asset turnover are effective on the market to book ratio (MBR). The ratios that affect the ROA are MBR, ROE, acid-test, leverage, equity multiplier, EBITDA/sales and current asset turnover. Moreover, the ratios that affect the ROE are the ROA, MBR, acid-test, asset turnover, leverage, and equity multiplier.

Spillovers and Dynamic Correlations between REITs, Exchange Rates, and Equities in Japan

This paper investigates return transmission, volatility spillovers, and dynamic correlations between the Tokyo Stock Exchange (TSE) Real Estate Investment Trust (REIT) index, the Nikkei 225 index, and the yen/dollar exchange rate. As a result, we find many new findings and these all show our significant contributions as follows. First, there is return transmission from the Nikkei 225 to the TSE REIT index. Second, there is bidirectional return transmission between the Nikkei 225 and the yen/dollar exchange rate. Third, there are bidirectional volatility spillovers between the Nikkei 225 and the TSE REIT index. Fourth, there are volatility spillovers from the Nikkei 225 to the yen/dollar exchange rate. Fifth, dynamic conditional correlations (DCCs) between TSE REIT returns and Nikkei 225 returns are not low. Moreover, DCCs between Nikkei 225 returns and yen/dollar exchange rate changes are not high. Furthermore, DCCs between TSE REIT returns and yen/dollar exchange rate changes are quite low. These our new findings shall be useful for not only deepening our understanding of financial markets but also our related future research.

Institutional Investors and Home-Biased REITs

Real estate investment trusts (REITs) are frequently considered an investment opportunity for institutional investors due to their above-average returns with respect to other financial instruments. Due to the unique characteristics of the real estate market, geographically specialized (home-biased) REITs can normally benefit from higher-quality information for selecting investment opportunities and from a reduction of the cost of monitoring and servicing asset owners. Home-biased REITs can be particularly appealing for institutional investors because the addition of this type of asset to an already diversified investment portfolio can optimize the risk–return of their investment strategy and mitigate the concentration of real estate investments. This paper considers all the REITs in Standard & Poor’s Global REIT Index and evaluates the percentage of investment released by (domestic and foreign) institutional investors and its change over time. Focusing on REITs’ international real estate exposure, this paper shows that geographical diversification matters for investment decisions made by international investors and the results are robust with respect to the time horizon and the proxy for ownership concentration.

International Real Estate Review

Ambrose et al. (2007) find significant evidence of information spillover effects between index real estate investment trusts (REITs) and nonindex REITs in the US markets using the inclusion of REITs into the S&P general market indices in an event study. This study, however, examines the effects of REIT index inclusion events by using non-index real estate operating company (REOC) returns in the US and Singapore. The study finds that REOC returns are more correlated with the general market index returns after REIT index inclusion events, but the spillover effects are smaller for REOCs in Singapore. The spillover effects of the REIT inclusion events are larger on non-index REITs than non-index REOCs in the US. When examining REIT inclusion events in Singapore, we find evidence of increases in betas only in the REIT market, but the changes in REOC betas are insignificant. However, we find that the REIT index inclusions significantly reduce the systematic risks of REOCs that sponsor the index REITs.

FOMC minutes sentiments and their impact on financial markets

I develop a semi-automated method that systematically evaluates the information in FOMC meeting documents. This method highlights economic conditions and calculates document sentiment indices that proxy for the FOMC's interest rate tilt. I compare the sentiment indices of FOMC minutes and their corresponding FOMC statements. Using high-frequency data, I then examine how these sentiment indices are associated with the fed funds futures contracts, broad equity, and real estate investment trust indices, and exchange rate valuation of several major currencies against the U.S. Dollar. I find that minutes sentiments have a statistically significant association with the fed funds futures rate and the U.S. dollar's valuation.

The Impact of COVID-19 on the Price Performance of Real Estate Investment Trusts (REITs) in Mexico

Real Estate Investment Trusts (REITs) are companies that own or finance income-producing real estate in a range of property sectors. REITs were created in México in 2011, they have become instruments for small and large investors to attract funds to the stock market in order to invest in real estate, such as office buildings, shopping malls, industrial warehouses and hotels, among other properties, in order to produce rental income. In just nine years of operations, the fifteen public-listed REITs in the Mexican stock market account for more than two thousand properties, with an area of 25 million square meters and 20 thousand hotel rooms, with accumulated assets of $25 billion US dollars and account for one-fifth of GDP of the country´s real estate sector. However, the pandemic effects have affected REITs revenue, particularly properties like office buildings, shopping malls and hotels. In Mexico, the first confirmed infection case of COVID-19 occurred on 27 February 2020. The increase of infected people and the presence of the first fatalities due to the virus, forced the Mexican government to establish voluntary confinement to contain the spread of the virus on 20 March 2020. In April, the suspension of non-essential activities in the country began for a 3-month period. The Mexican economy was severely affected by confinement, activity suspensions, global economic recession, and dropping oil prices. In April and May alone, 12 million jobs were lost in the formal and informal sectors and the activities that performed the worst in this period were tourism services, that decreased in April 70.4% and in May 72.1%, construction fell 38.4% and 35.9%, manufacturing had a loss of 35.6% in both months. The retail and wholesale trade sectors, transport and recreational services fell by around 30% in all cases and foreign trade declined 35.8% in April and 52.0% in May. These measures also had an important effect on the prices of the REITs Certificates. The REITs index fell 36.7%, between 28 February and 23 March 2020, just three weeks after the first contagion was announced, while the Certificate prices of most REITs had also an unfavorable performance in the same period, with declines of between 8% and 42%. On the last day of June 2020, four REITs performed negatively with percentages greater than 30% and the REITs Index was below 19.5% compared to December 2019. Properties generating higher people concentrations (shopping malls, stadiums, theaters, concert halls and hotels) will be the most affected in this crisis and will be forced to implement innovative schemes to operate in order to generate earnings in the future. The article studies the impact of COVID-19 in the price of REITs Certificates, as the effect in the value of the REITs Index in the Mexican Stock Market. The price of the different REITs stocks and Index are compared to their price at the end of 2019 and an estimate of the future impact in the results of operations of the corresponding REITs. An analysis of the geography of COVID-19 in Mexico is performed, considering how the different sectors where the REITs properties are geographically located in order to look for a possible evidence of COVID-19 effect.

The Determinants of Conditional Skewness in REIT Returns

In this study, it is determined whether changes in a set of financial and macroeconomic state variables explain the variations in the conditional systematic, idiosyncratic, and total skewness of six aggregate Real Estate Investment Trust (REIT) indices. The findings suggest that variations in the idiosyncratic skewness of REIT indices can be explained by monthly changes in the CBOE volatility index (VIX), term spread, unemployment, and industrial production. Contemporaneous variations in the systematic skewness of aggregate REIT indices can be explained by changes in the VIX index, default spread, and private consumption. Two crisis dummy variables, defined as the technology bubble of 2000 (TCD) and the financial crisis of 2007 (FCD), are also considered. The technology bubble has a dampening effect on systematic skewness while the opposite is the case for the financial crisis dummy. Quantile regression is employed in order to determine the robustness of the results. The evidence shows that the findings are robust to various quantile specifications for the distributions of the skewness measures.

Volatility jumps and their determinants in REIT returns

This paper examines the roles of jumps in the time series of Real Estate Investment Trust (REIT) returns. Using measures of the quadratic variation of high-frequency REIT returns, it documents evidence of jumps in the returns and volatility of returns. Evidence of persistence in the occurrence of jumps is also uncovered. Motivated by these findings, the paper also examines whether a set of financial and macroeconomic state variables can account for the magnitude of jumps seen in the returns and volatilities of REIT indices. By applying linear and threshold regressions, heterogeneous autoregressive volatility, and conditional hazard models on the jump data, it is shown that variations in the magnitude of jumps, the frequency of jumps, and the realized volatilities of REIT returns can be explained by term spread, default spread, VIX, equity market returns, commodity returns, and the U.S. dollar exchange rates.

THE EXCHANGE RATE EFFECT ON HOUSING PRICE INDEX AND REIT INDEX RETURN RATES

Real estate is an important investment instrument, and homeownership has always been considered as a valuable investment tool in Turkey. Real Estate Investment Trusts (REITs) are one of the first real estate investment instruments that the Capital Market Board of Turkey (SPK) legally regulated. The exchange rate is an important factor that affects many industries including real estate, especially in emerging economies. This macroeconomic economic factor became more important for Turkish housing and real estate industries after the law issued in 2013 that enabled foreigners to purchase housing units in Turkey. The aim of this research is to examine the effect of exchange rates (USD/TL) on the return rates of REIT and housing sales price indices by using time series analysis covering the monthly period of January 2004-December 2016. VAR econometric model is used to test the effect of the exchange rates on the return rates of both indices, and Augmented Dickey-Fuller and Granger Causality Tests were also employed. The results of the study exhibited that while REIT index return rate is affected by exchange rates, there is no statistically significant effect of exchange rates on housing sales price return rates. This result may affect the perception of the investors about considering housing as an investment tool in Turkey and open a new discussion for alternative future retirement plans that may combine different real estate-based investment instruments.

How Smart Is the Real Estate Smart Beta? Evidence from Optimal Style Factor Strategies for REITs

This paper has a twofold objective. First, we contribute to the stream of literature that investigates whether traditional asset pricing factors show any predictive power for the cross-section of Real Estate Investment Trust (REIT) returns. In particular, we investigate the existence of a premium associated to the Value, Size, Momentum, Investment, and Profitability factors over the period 1993-2018. We find support for all the pricing factors but for the Profitability one. Second, we investigate whether a set of smart beta strategies, based on the combination of the identified factors, may outperform similar allocation techniques that do not exploit factors. We find that all the proposed factor-based strategies display a higher risk-adjusted out-of-sample performance than a simple buy-and-hold investment in the real estate market (proxied by the FTSE NAREIT All REITs Index). In addition, we find that when factor-based strategies are implemented, REIT-only portfolios display risk-adjusted performances comparable to those of diversified portfolios that include equity, bond, and commodities.

Disentangling bubbles in equity REITs

This paper examines the occurrence of price bubbles in equity real estate investment trusts (REITs) classified by property types. We employ the Generalized Supremum Augmented Dickey–Fuller (GSADF) methodology to a sample spanning January 1980–December 2017. The analysis considers the overall equity REIT index and seven major property sectors including Diversified, Healthcare, Industrial/Office, Lodging/Resorts, Residential, Retail, and Self-Storage. Our results reveal significant bubble periods in the overall equity REIT index and all property sectors except for Lodging/Resorts. Interestingly, we observe unique patterns in the price bubbles for all remaining six property sectors. Our results confirm that each property sector represents a distinct line of business.

The adjustment speeds of short-run real estate investment trust (REIT) and corresponding stock returns in the USA and Australia

This study first uses the non-linear co-integration with structural breaks by Gregory and Hansen (1996) to examine whether non-linear co-integration exists between real estate investment trusts (REITs) and corresponding stock markets in the United States and Australia. Second, we employ the smooth transition vector-error correction model (STVECM) including the generalized autoregressive conditional heteroskedasticity (GARCH) model to separately explore the adjustment efficiencies of non-linear short-run REIT and corresponding stock return dynamics, as well as respective REIT return dynamics when the long-run disequilibrium occurs. The results show that a structural break co-integration exists between the equity and mortgage REITs and stock markets in the US, between the REITs and stock markets in the Australia and between the REIT markets in both the US and Australia. When there are large positive and negative deviations of STVECM, the adjustment speed of reverting to equilibrium of the S&P 500 index is greater than that of the Mortgage REIT index. However, when there are large positive (negative) deviations of STVECM, the adjustment speed of reverting to equilibrium of the Australian REIT (stock) index is greater, and that of the Australian REIT (US REIT) index is greater. In addition, by using a non-linear Granger causality test by Hiemstra and Jones (1994), we find that credit price effects exist between the US for each type of REIT and stock markets regardless of large positive or negative deviations (or returns) in STVECM (or STVAR). However, there is a feedback effect exists between the REITs and the stock markets in Australia.

The Consequences of REIT Index Membership for Return Patterns

AbstractThe impact of stock market index membership on Real Estate Investment Trust (REIT) stock returns is unclear. Returns may become more like those of other indexed stocks and less like those of their underlying properties. Taking advantage of the inclusion of REITs in major S&P indexes starting in 2001, we find that shared index membership significantly increases the correlation between REIT returns. However, index membership also enhances the link between REIT returns and the underlying real estate, consistent with improved pricing efficiency.