Real Estate Returns and the Macroeconomy: Some Empirical Evidence from Real Estate Investment Trust

Thomas E. McCue () and John L. Kling
Additional contact information
Thomas E. McCue: Department of Finance and Real Estate A.J. Plumbo School of Business Duquesne University Pittsburgh, Pennsylvania 15282, http://www.uh.edu/academics/sos/econ/
John L. Kling: Department of Finance College of Business and Economics Washington State University Pullman, Washington 99164-4746, http://www.cbe.wsu.edu/~fire/

Journal of Real Estate Research, 1994, vol. 9, issue 3, pages 277-288

Abstract: This paper explores the relationship between the macroeconomy and real estate returns. Equity REIT data are used as a proxy for real estate returns; however, the equity REIT returns are regressed against returns from the Standard and Poor's 500 Stock Index, saving the residuals. These residuals, known as extra-market covariance, are used in the analysis since this technique controls for the covariance between equity REIT returns and the overall stock market. Thus, the residuals represent pure industry effects. The residuals are then employed in an unrestricted vector autoregressive model with the macroeconomic variables to test for relationships. The results show that prices, nominal rates, output, and investment all directly influence the real estate series. Nominal interest rates, moreover, explain the majority of the variation in the real estate series.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 1994
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