Dynamic Effects of Financial Stress on the U.S. Real Estate Market Performance

25 Pages Posted: 4 Jan 2013 Last revised: 2 May 2014

Vichet Sum

University of Maryland Eastern Shore - School of Business and Technology

Date Written: January 3, 2013

Abstract

Based on the theoretical framework of financial amplification, this study is set up to investigate the dynamic effects of financial stress on the performance of the U.S. real estate market proxied by Real Estate Investment Trust (REIT) returns in the United States using vector autoregressive (VAR) analysis. Based on the analysis of monthly REIT returns and the monthly changes in the Federal Reserve Bank of St. Louis Financial Stress Index spanning 1994-2011, the response of returns on the CRSP Ziman REIT Indexes and Sub Indexes becomes negative immediately for the first few months following the spike in financial stress. The Granger-causality test is also performed to assess if financial stress causes the REIT returns to drop. The variance decomposition is also conducted to determine the relative importance of the returns on the overall stock market and financial stress in explaining returns on the CRSP Ziman REIT Indexes and Sub Indexes.

Keywords: REIT returns, financial stress, dynamic effects, variance decomposition, VAR

JEL Classification: G12, G14, L85

Suggested Citation

Sum, Vichet, Dynamic Effects of Financial Stress on the U.S. Real Estate Market Performance (January 3, 2013). Available at SSRN: https://ssrn.com/abstract=2196251 or http://dx.doi.org/10.2139/ssrn.2196251

Vichet Sum (Contact Author)

University of Maryland Eastern Shore - School of Business and Technology ( email )

2105 Kiah Hall
Princess Anne, MD 21853
United States
410-651-6531 (Phone)
410-651-6529 (Fax)

HOME PAGE: http://www.umes.edu/bma/Sum.html

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