Economic policy uncertainty and US sector REITs: what can we learn from spillovers?

Purpose - This study examines the impact of Economic Policy Uncertainty (EPU) on US Real Estate Investment Trust (REIT) sectors from 1994 to 2024, focusing on dynamic spillover effects across varying economic environments. Design/methodology/approach - Employing a time-varying parameter vector autoregression (TVP-VAR) model, the research analyzes sectoral interconnectedness and spillover dynamics, capturing the evolving relationships between REIT subsectors and EPU over time. Findings - The analysis reveals that US REIT subsectors are highly interconnected, indicating substantial internal spillovers. Retail, regional malls and shopping centres are primary shock transmitters, while self-storage, manufactured homes and industrial REITs act as net receivers, demonstrating resilience. Over the study period, Economic Policy Uncertainty (EPU) generally functions as a net receiver of spillovers from REITs. However, pairwise time-varying analysis shows that EPU transmitted shocks during the economic uncertainties of the 1990s but became a net receiver during the 2008 financial crisis and the COVID-19 pandemic, suggesting that disruptions in REIT markets contributed to policy uncertainties during crises. Additionally, the sectors driving volatility shifted over time: residential and apartment REITs were predominant during the 2008 crisis, while disruptions in the office sector were significant during the pandemic. Practical implications - Policymakers ought to design targeted interventions to stabilize the sectors that are primary transmitters of shocks during economic downturns and monitor closely economic indicators and adopt policies to mitigate adverse spillover effects. Originality/value - This study offers novel insights into the time-varying interconnections between REIT sectors and economic uncertainty, illustrating how these relationships evolve with economic conditions and enhancing understanding of REIT resilience under uncertainty.