US REITs' Returns Sensitivity to Interest Rates after the Global Financial Crisis

Purpose: This paper investigates whether US REITs’ returns have been sensitive to the monetary policy introduced after the Global Financial Crisis of 2008. Design/methodology/approach: For the period from 1995 to 2015, we tested the correlation between US REITs’ returns and interest rates, since the central banks commonly use interest rates as a tool to implement their policy. Then, using three sub-periods, we observed how the sensitivity of US REITs to interest rates changed according to the different economic environments. Using two risk factors — the stock market and the changes in long-term interest rates — we created a multifactor model based around the classical CAPM (Sharpe, 1964) and an elaboration of intertemporal CAPM (Merton, 1973). Findings: We found that the stock market was statistically significant for all subperiods considered, and changes in long-term interest rates were statistically significant only for the subperiod 2009–2015. We also found that an increase in 10-year US Treasuries’ yields corresponded to a decrease in US REITs’ market returns. Practical implications: Our findings confirm the sensitivity of US REITs’ performance under post-crisis monetary policy and suggest that the monetary policy has been successful in sensitizing the real estate market and improving its performance after lowering interest rates. Originality/value: The paper provides a further evidence of the sensitivity of indirect real estate investment to interest rates variation during a period of economic turmoil.