Climate risks and the REITs market

Afees Salisu, Ahamuefula E. Ogbonna and Xuan Vinh Vo

International Journal of Finance & Economics, 2025, vol. 30, issue 2, 1632-1648

Abstract: This study presents results supporting the need to price climate risks in real estate investment trusts. We approach this objective by conducting some empirical analyses for global, regional, and [US] sectoral REITs for want of wider coverage while we also consider variants of climate risks involving physical and transition risks. We first establish that climate concerns amplify the volatility of REIT returns. While our results are split for sectoral REITs, we find that both physical and transition risks magnify the volatility in the regional and global REITs market. However, when we consider the US sectoral REITs, we find contrasting evidence between the two variants of climate risks. While the transition risks seem to raise the REITs market volatility, perhaps owing to improved trading in the market as signalled by some level commitments towards addressing climate change, the physical risks associated with damages due to climate change tend to lower the REITs market volatility due to lower trading. Consequently, we formulate a framework that enables a profit‐maximizing investor to observe climate risks when making investment decisions in the REITs market, and we further show that doing so provides higher economic gains than ignoring it. This outcome has implications for investors looking for the best hedging strategy against climate‐related risks, especially as the world intensifies efforts towards de‐carbonization.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/ijfe.2983

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:30:y:2025:i:2:p:1632-1648

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().