The U.S. Term Structure and Return Volatility in Global REIT Markets

Riza Demirer, Rangan Gupta, Asli Yuksel () and Aydin Yuksel ()
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Asli Yuksel: Department of International Finance, Bahcesehir University, Ciragan Caddesi Besiktas, Istanbul 34349 Turkey
Aydin Yuksel: Department of Management, Isik University, Universite Sokak No: 2 Sile, Istanbul 34980 Turkey

No 202069, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper examines the information content of the U.S. term structure of interest rates on the market for real estate investment trusts (REITs) by decomposing the term structure of U.S. Treasury yields into two components that reflect the expectations factor and the maturity premium. We show that the expectations factor component of the U.S yield curve has significant explanatory power over return volatility in REIT stocks, both in the U.S. and globally, even after controlling for stock market trading activity. The expectations factor is generally found to have a positive effect on REIT market volatility, more significantly for the U.S. and Japanese REITs, highlighting the role of global funding conditions (via expected short rates) on return fluctuations in real estate markets. Comparing the findings for the pre- and post-global crisis periods, however, we find that the U.S. term structure has largely lost its explanatory power over global REIT markets, implied by largely insignificant effects during the post-global crisis period. The findings highlight the changing dynamics in REIT investments in the aftermath of the 2018 global credit crunch, possibly due to the slowdown of investments in the real estate sector globally, and suggest that investors will have to focus more on the idiosyncratic risk factors that drive these markets.

Keywords: Real estate investment trusts; Term structure; Volatility (search for similar items in EconPapers)
JEL-codes: C22 C58 G14 G15 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2020-07
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Citations: View citations in EconPapers (1)

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