DO REIT RETURNS BEHAVE DIFFERENTLY UNDER DIFFERENT ECONOMIC CONDITIONS?

Abstract

This paper aims to investigate the relationship between REIT returns and macroeconomic variables including stock returns, interest rate change and real economic activity in different economic conditions. Macroeconomic variables undertake “orthogonalization” and linear regression is conducted. This study covers a 10-year study period between January 2000 and December 2009. The author extends to examine benefits of diversification in REITs by property type. Empirical result shows presence of strong relationship between REIT returns and both big capitalization stocks returns and small capitalization stock returns across different economic cycles. Interest rate shows rather moderate link with REIT returns. Real economic activity is weak and remote with regards to REIT returns. Increase in systematic risk of REITs is detected especially in recent period. Diversified REITs deliver limited benefits of lower idiosyncratic risk as compared to specialized REITs.