The relative importance of economic policy uncertainty and geopolitical risk on U.S. REITs returns
| Date | 03 September 2024 |
| Pages | 576-590 |
| DOI | https://doi.org/10.1108/JPIF-05-2024-0064 |
| Published date | 03 September 2024 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Alain Coën,Aurélie Desfleurs |
The relative importance of
economic policy uncertainty and
geopolitical risk on U.S.
REITs returns
Alain Co€
en
Department of Finance, Universit
eduQu
ebec
a Montr
eal, Montr
eal, Canada, and
Aur
elie Desfleurs
Department of Accounting, University of Sherbrooke, Sherbrooke, Canada
Abstract
Purpose –Our aim in this study is to investigate the relative importance of the economic policy uncertainty
and of the geopolitical risk on U.S. REITs (Real Estate Investment Trusts) returns with a special focus on the
different real estate sectors.
Design/methodology/approach –We use an augmented Fama-French (1993)’s asset pricing model,
including economic policy uncertainty indices (EPU), introduced by Baker et al. (2016), and geopolitical risk
indices (GPR) recently developed by Caldara and Iacoviello (2022), to price the potential risk factors for U.S.
Nareit indices returns. To obtain robust economic results, we correct for the problems of errors-in-variables in
linear asset pricing models; we advocate the use of higher momentsestimators as instruments in a generalized
method of moments (GMM) framework.
Findings –Our resultsreport that economicpolicy uncertainty(EPU), and geopoliticalrisk (GPR) are priced for
the different Nareit sectors for the last three decades. The GPR index stands as a relevant risk factor. The
coefficientestimatesare low compared to Fama-Frenchrisk factors. They are higherfor Shopping Centers,Retail
andRegion Mallsand lower for HealthCare and Lodging/Resorts.EPUindices are alsopriced and lessstatistically
significant.Health Care sector, followed by ShoppingCenters and Retail are themost policy-sensitivesectors.
Practical implications –In their “2023–2024 Top Ten Issues Affecting Real Estate”“political unrest and
global economic health”is ranked 1 issue by the Counselors of Real Estate. Our results report that economic
policy uncertainty andgeopolitical risk are priced for the different Nareit sectors. They suggest implicationsfor
investors, insurers, bankers, policymakers and other stakeholders. The geopoliticalrisk index (GPR) stands as
a relevant and significant risk factor for REITs returns.
Originality/value –Based on parsimonious robust asset pricing models, the results shed a new light on the
relative importance of geopolitical risk and economic policy uncertainty in the real estate sector, with a special
focus on the different U.S. REITs sectors. They suggest possible implications for investors, insurers, bankers,
policymakers and other stakeholders in a context marked by higher uncertainty shocks and geopolitical risks.
Keywords Geopolitical risk, Economic policy uncertainty, REITs, Asset pricing, Multifactor models, GMM
Paper type Research paper
1. Introduction
In this article, we analyze the relative impacts of economic political uncertainty, as defined by
Baker et al. (2016), and geopolitical risks, as recently introduced by Caldara and Iacoviello
(2022), on the performance of U.S. Nareit returns since the “new REITs era”(1993) (Pagliari
et al., 2005).
JPIF
42,6
576
JEL Classification —F51, F60, G12, G15, R3
A version of this article was written when Alain Co€
en was visiting the GREFA at the University of
Sherbrooke. We are also grateful to Kola Akinsomi, Martin Hoesli, Daniel Huerta, Andres Jauregui,
Stephen Lee, Benoit Lefebvre, Ariel Sun, participants at the 30th European Real Estate Society
Conference (2024), two anonymous referees and to the editor, Nick French, for their very helpful
comments and suggestions. The usual disclaimer applies.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 13 May 2024
Revised 25 July 2024
Accepted 27 July 2024
Journal of Property Investment &
Finance
Vol. 42 No. 6, 2024
pp. 576-590
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-05-2024-0064
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting