Market States and the Effect on Equity REIT Returns due to Changes in Monetary Policy Stance

Ming-Chi Chen, Chi-Lu Peng, So-De Shyu and Jhih-Hong Zeng

Online First™, 3 August 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) – Monetary policy – Quantile regression – Macroeconomic factors

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