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| Real Estate Returns and the
Macroeconomy: Some Empirical Evidence from Real Estate Investment Trust Author: Thomas E. McCue and John L. Kling Start Page: 277 Abstract: This paper explores
the relationship between the macroeconomy and real estate returns. Equity REIT data are
used as a proxy for real estate returns; however, the equity REIT returns are regressed
against returns from the Standard and Poor's 500 Stock Index, saving the residuals. These
residuals, known as extra-market covariance, are used in the analysis since this technique
controls for the covariance between equity REIT returns and the overall stock market.
Thus, the residuals represent pure industry effects. The residuals are then employed in an
unrestricted vector autoregressive model with the macroeconomic variables to test for
relationships. The results show that prices, nominal rates, output, and investment all
directly influence the real estate series. Nominal interest rates, moreover, explain the
majority of the variation in the real estate series. |
