International Research Journal of Applied Finance, 3(12), 1739-1747
11 Pages Posted: 26 Sep 2012 Last revised: 30 Dec 2012
Date Written: September 25, 2012
This paper examines the effect of economic policy uncertainty on the performance of the real estate sector proxied by Real Estate Investment Trust (REIT) returns in the United States. Using monthly REIT index data and the monthly changes in a newly constructed index of economic policy uncertainty (∆EPU) in the United States spanning 1985-2011, we investigate the impulse response functions of the REIT returns to the changes in economic policy uncertainty using a vector auto regression (VAR) analysis. The Granger-causality test is also performed to determine if economic policy uncertainty causes the fluctuations in REIT returns. The relationship is weaker for mortgage investments than the total index. When mediated by the CRSP Value Weighted Stock Returns, the relationship between REIT returns and the ∆EPU becomes insignificant.
Keywords: REIT, economic policy uncertainty, VAR
JEL Classification: E60, G12, G14, L85
Suggested Citation: Suggested Citation
Sum, Vichet and Brown, Kate, Real Estate Sector Response to Economic Policy Uncertainty Shocks (September 25, 2012). International Research Journal of Applied Finance, 3(12), 1739-1747. Available at SSRN: https://ssrn.com/abstract=2151998 or http://dx.doi.org/10.2139/ssrn.2151998