Effect of macroeconomic shocks on REITs returns

Abstract

While REITs are useful investment vehicle that offer a variety of benefits , little is known about how they inter<1ct with the macroeconomic conditions in developing REITs markets. The objective of this study was to establish the effect of macroeconomic shocks on the retums on REITs in Malaysia, Taiwan and Turkey as well as the direction of the relationship between the macroeconomic shocks and REITs retums investments. This paper addressed this issue by looking at the interaction between REITs which <1re securitised real estate property and changes in the macroeconomic factors namely inflation r<1te, interest rate, exch<1nge rate, money supply and gross domestic product for three developing REITs markets. This study used quarterly secondary data that covered the period between 2009(Q4)-20 19(03) for all the three countries. This study involved the use of the theoretical framework which is the Arbitrage Pricing Theorem and pooled OLS empirical framework that was deten11ined after canying out various diagnostic test on the data. This study found out that GDP and Foreign exchange rates were the only significant variables in explaining REITs returns. From the study, there was 1.035784% increase in REITs retums whenever the local currency depreciated to imply that there w<1s a heavy investment on REITs by parties outside the borders of the three countries. GDP growth and REITs retums had a negative relationship. Whenever the gross domestic product went up by a billion, then REITs returns would decrease by 25% .