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Real Estate Markets and Uncertainty Shocks: A Variance Causality Approach

Ahdi Noomen Ajmi, Vassilios Babalos, Fotini Economou () and Rangan Gupta ()
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Fotini Economou: Faculty of Economics and Management, Open University of Cyprus, Cyprus

No 201436, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates the impact of macroeconomic effects of uncertainty on the conditional volatility of US-listed Real Estate Investment Trusts (REITs). To this end we employ three widely accepted US REITs indices and the two uncertainty indices constructed by Baker et al. (2013). Our sample is extensive covering the period from 4th of January 1999 to 28th of June, 2013. We employ the recently developed test of causality in variance by Hafner and Herwarz (2006) and then we track the response of REITs conditional volatility to various key events as marked by the evolution of the uncertainty indices. Our results provide some useful insights for the causal nexus between real estate and macroeconomic environment. We provide evidence in favor of a two-way transmission channel between REITs conditional volatility and macroeconomic uncertainty. Moreover, equity REITs appear rather sensitive to deteriorating investors' sentiment. Our results entail policy implications for investors, regulators and monetary authorities.

Keywords: Real estate investment trusts; uncertainty shocks; causality; volatility impulse response function (search for similar items in EconPapers)
JEL-codes: C22 C32 E52 R31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-ore
Date: 2014-07
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