Shocks to macroeconomic state variables and the risk premium of REITs

Following the work of Chen, Roll, and Ross (Journal of Business, 59, 383-403, 1986), there has been considerable work examining the influence of macroeconomic state variables on the excess returns of REITs. While most of the previous research has focused on the examination of equity REITs, this paper examines the three broad classification of REITs: equity, mortgage, and hybrid. This exploratory study identifies the response of REIT excess returns to unexpected changes in the broader stock market, real output growth, inflation, term structure of interest rates, default risk, and the federal funds rate using the generalized impulse response analysis.