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The US Term Structure and Return Volatility in Global REIT Markets

The US Term Structure and Return Volatility in Global REIT Markets

Title

The US Term Structure and Return Volatility in Global REIT Markets

Authors

  • Riza Demirer
    (Department of Economics & Finance, Southern Illinois University Edwardsville, USA)
  • Rangan Gupta
    (Department of Economics, University of Pretoria, South Africa)
  • Asli Yuksel
    (Department of International Finance, Bahcesehir University, Cıragan Caddesi Besiktas, Turkey)
  • Aydin Yuksel
    (Department of Management, Isik University, Universite Sokak, Turkey)

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

Classification-JEL

C22, C58, G14, G15

Pages

84-109

https://doi.org/10.47654/v24y2020i3p84-109

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ISSN 2090-3359 (Print)
ISSN 2090-3367 (Online)

Asia University, Taiwan

Scientific and Business World

4.7
2023CiteScore
 
86th percentile
Powered by  Scopus
SCImago Journal & Country Rank
Q2 in Scopus
CiteScore 2023 = 4.7
CiteScoreTracker 2024 = 8.5
SNIP 2023 = 0.799
SJR Quartile = Q1
SJR 2024 = 0.814
H-Index = 20

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