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The Dynamics of REIT Capital Flows and Returns

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  • David Ling
  • Andy Naranjo

Abstract

This study examines the effects of capital flows into the REIT sector on REIT returns and, simultaneously, the effects of REIT returns on subsequent REIT capital flows. The dynamic relation between REIT capital flows and returns is estimated using vector autoregression (VAR) techniques. Unlike static regression techniques, our dynamic model produces estimates of the short‐run relationships, long‐run relationships, impulse response functions and forecast variance decompositions. We find evidence that REIT equity flows are significantly positively related to the prior quarter's flows and negatively related to flows from two quarters ago. The evidence on the responsiveness of flows to prior returns is time‐period specific. In the important post‐1992 subperiod, REIT returns do not significantly affect REIT flows in any of the VAR model specifications. Simultaneously, REIT capital flows do appear to have a significant influence on equity REIT returns.

Suggested Citation

  • David Ling & Andy Naranjo, 2003. "The Dynamics of REIT Capital Flows and Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(3), pages 405-434, September.
    • Handle: RePEc:bla:reesec:v:31:y:2003:i:3:p:405-434
    DOI: 10.1111/1540-6229.00071
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    References listed on IDEAS

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    1. J. Sa-Aadu & James D. Shilling, 2002. "Dividend Policy, Capital Gain Realizations and REIT Value," ERES eres2002_141, European Real Estate Society (ERES).
    2. Froot, Kenneth A. & O'Connell, Paul G.J., 2008. "On the pricing of intermediated risks: Theory and application to catastrophe reinsurance," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 69-85, January.
    3. Elizabeth Berko & John Clark, 1997. "Foreign investment fluctuations and emerging market stock returns: the case of Mexico," Staff Reports 24, Federal Reserve Bank of New York.
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