Market States and the Effect on Equity REIT Returns
due to Changes in Monetary Policy Stance
Published online: 4 August 2010
Springer Science+Business Media, LLC 2010
Abstract This study investigates the effect of changes in monetary policy on US
equity real estate investment trust (EREIT) returns in lower and higher return ranges
during bull, bear, and volatile stock market states using quantile regression. Results
show that EREIT returns are sensitive to changes in monetary policy at different
EREIT return ranges in different market states. During bull markets, changes in
monetary policy have a significant negative impact on EREIT when investors have
lower expectations of real estate price increases, but are not effective when investors
have higher expectations of real estate price increases. During volatile and bear
markets, EREIT returns are not sensitive to changes in monetary policy stance.
Results also show that EREIT returns respond positively to stock returns in various
states and conditions.
Keywords Real estate investment trust (REIT)
There is a strong linkage between monetary stances and investment opportunities.
Existing studies show that changes in monetary conditions deliver significant effects
not only on stock markets (Jensen and Mercer 2002; Bernanke and Kuttner 2005;
J Real Estate Finan Econ (2012) 45:364–382
M.-C. Chen (*)
Department of Finance, National Sun Yat-sen University, 70 Lien-hai Rd.,
Kaohsiung 804 Taiwan, Republic of China