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| Cointegration and Price Discovery
between Equity and Mortgage REITs Author: Ling T. He Start Page: 327 Abstract: This study analyzes
the relationship between equity and mortgage real estate investment trust (REIT) stock
prices by performing cointegration tests and causality tests, and estimating an error
correction model. Evidence is found that a stable long-run linear relationship exists
based on their common reactions to changes in market returns, interest rates and other
additional factors. Geweke causality test results indicate a causal relationship running
from EREIT stock prices to MREIT stock prices. This may reflect the quicker response of
equity REIT stock prices to changes including real estate returns. In addition, the
results suggest overall linear dependence (total linear causality) and instantaneous
linear feedback between changes in EREIT and MREIT stock prices. The results of the error
correction model not only indicate a significant increase in the explanatory power of the
model compared with the vector autoregression model but also reveals how the price
discovery processes in REIT security markets maintain long-run equilibrium. |
