Chang, Kuang-Liang and Chen, Nan-Kuang and Leung, Charles Ka Yui (2009): Monetary Policy, Term Structure and Asset Return: Comparing REIT, Housing and Stock.
Download (1MB) | Preview
This paper confirms that a regime-switching model out-performs a linear VAR model in terms of understanding the system dynamics of asset returns. Impulse responses of REIT returns to either the federal funds rate or the interest rate spread are much larger initially but less persistent. Furthermore, the term structure acts as an amplifier of the impulse response for REIT return, a stabilizer for the housing counterpart under some regime, and, perhaps surprisingly, almost no role for the stock return. In contrast, GDP growth has very marginal effect in the impulse response for all assets.
|Item Type:||MPRA Paper|
|Original Title:||Monetary Policy, Term Structure and Asset Return: Comparing REIT, Housing and Stock|
|Keywords:||monetary policy; yield curve; REITs; house prices; Markov Regime Switching|
|Subjects:||R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General
G - Financial Economics > G1 - General Financial Markets > G10 - General
R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R33 - Nonagricultural and Nonresidential Real Estate Markets
|Depositing User:||Charles Ka Yui Leung|
|Date Deposited:||28. Jun 2010 03:28|
|Last Modified:||12. Feb 2013 18:35|
 Akerlof, G. (1970), The market for lemons: qualitative uncertainty and the market mechanism, Quarterly Journal of Economics, 84, 488-500.
 Arrow, K. and F. Hahn (1971), General Competitive Analysis, New York: North-Holland.
 Beneveniste, L., D. Capozza and P. Seguin (2001), The value of liquidity, Real Estate Economics, 29, 633-660.
 Bernanke, B. and M. Gertler (2001), Should central banks respond to movements in asset prices? American Economic Review, 91, 253-257.
 Bollen, N.; S. Gray and R. Whaley (2000), Regime Switching in Foreign Exchange Rates: Evidence from Currency Option Prices, Journal of Econometrics, 94(1-2), 239-76.
 Bond, S. A., and K. Patel (2003), The Conditional Distribution of Real Estate Returns: Are Higher Moments Time Varying? Journal of Real Estate Finance and Economics, 26(2-3), 319-39.
 Bredin, D., G. O’Reilly, and S. Stevenson (2007), Monetary Shocks and REIT Returns, Journal Real Estate Finance and Economics, 35, 315—331.
 Cai, J. (1994). A Markov Model of Switching-regime ARCH, Journal of Business and Economic Statistics, 309-316.
 Campbell, J. Y. (1987), Stock Returns and the Term Structure, Journal of Financial Economics, 18(2), 373-99.
 Capozza, D. and P. Seguin (1998), Mangerial style and firm value, Real Estate Economics, 26, 131-150.
 Capozza, D. and P. Seguin (1999), Focus, tranparency, and value: the REIT evidence, Real Estate Economics, 27, 587-619.
 Chan, K. C., P. H. Hendershott, and A. B. Sanders (1990), Risk and Return on Real Estate: Evidence from Equity REITs, American Real Estate and Urban Economics Association Journal, 18, 431-52.
 Chan, S. H., J. Erickson and K. Wang, (2003), Real Estate Investment Trusts: Structure, Performance, and Investment Opportunities, Oxford: Oxford University Press.
 Chan, S. H., W. K. Leung and K.Wang, (2005), Change in REIT structure and stock performance: evidence from the Monday Stock Anomaly, Real Estate Economics, 33(1), 89-120.
 Chen, N.-F. (1991), Financial Investment Opportunities and the Macroeconomy, Journal of Finance, 46(2), 529-54.
 Cheung, Y.W. and U. G. Erlandsson (2005), Exchange Rates and Markov Switching Dynamics, Journal of Business and Economic Statistics, 23(3), 314-20.
 Christiano, L. J., M. Eichenbaum, and C. L. Evans, 1999, Monetary Policy Shocks: What Have We Learned and to What End?, in Handbook of Macroeconomics, vol. 1A, edited by J. B. Taylor and M.Woodford. Amsterdam : Elsevier Science.
 Ciochetti, B.; T. Craft and J. Shilling (2002), “Institutional investor’ preferences for REIT stocks,” Real Estate Economics, 30(4), 567-593.
 Cochrane, J. (2001), Asset Pricing, Princeton: Princeton University Press.
 Cochrane, J. (2005), “Financial Markets and the real economy,” NBER Working Paper 11193.
 Collin-Dufresne, P. (2004), “Affine term structure models,” UC Berkeley, mimeo.
 Dornbusch, R. (1976), “Expectations and exchange rate dynamics,” Journal of Political Economy, 84, 1161-1176.
 Driffill, J. and M. Sola (1998), “Intrinsic Bubbles and Regime-Switching,” Journal of Monetary Economics, 42(2), 357-73.
 Duan, J. C.; I. Popova and P. Ritchken (2002), “Option Pricing under Regime Switching,” Quantitative Finance, 2(2), 116-32.
 Emiris, M. (2006), “The term structure of interest rates in a DSGE model,” National Bank of Belgium, mimeo.
 Estrella, A. (2005), “Why Does the Yield Curve Predict Output and Inflation?” Economic Journal, 115, 722-44.
 Estrella, A. and G. Hardouvelis, (1991), “The term structure as a predictor of real economic activity,” Journal of Finance, 46(2), 555-76.
 Estrella, A. and F. Mishkin (1997), “The predictive power of the term structure of interest rates in Europe and the United States: implications for the European Central Bank,” European Economic Review, 41, 1375-1401.
 Estrella, A. and M. R. Trubin (2006), “The Yield Curve as a Leading Indicator: Some Practical Issues,” Current Issues in Economics and Finance, 12, No.5, Federal Reserve Bank of New York.
 Fama, E. (1990), “Term-structure forecasts of interest rates, inflation, and real returns,” Journal of Monetary Economics, 25, 59-76.
 Fama, E. and K. French (1989), “Business Conditions and Expected Returns on Stocks and Bonds,” Journal of Financial Economics, 25, 23-49.
 Ferson, W. E. (1989), “Changes in Expected Security Returns, Risk, and Level of Interest Rates,” Journal of Finance, 44, 1191-1217.
 Francq, C. and J. M. Zakoian (2001), “Stationary of multivariate Markov-switching ARMA models,” Journal of Econometrics, 10, 339-364.
 Froot, K. and M. Obstfeld (1991), “Exchange-Rate Dynamics under Stochastic Regime Shifts: A Unified Approach,” Journal of International Economics, 31(3-4), 203-29.
 Glascock, J., C. Lu, and R. So (2002), “Further evidence on the integration of REIT, bond, and stock returns,” Journal of Real Estate Finance and Economics, 20, 177-194.
 Glascock, J., C. Lu, and R. So (2002), “REIT Returns and Inflation: Perverse or Reverse Causality Effects?” Journal of Real Estate Finance and Economics, 24, 301—317.
 Goodfriend, M. (2007), “How the World Achieved Consensus on Monetary Policy,” Journal of Economic Perspectives, 21(4), 47-68.
 Goodfriend, M. and R. King (2005), “The Incredible Volcker Disinflation,” Journal of Monetary Economics, 52(5), 981-1015.
 Goodhart, C. (2001), “What weight should be given to asset prices in the measurement of inflation?” Economic Journal, 111, 335-356.
 Goodhart, C. and B. Hofmann, (2007), House Prices and the Macroeconomy: Implications for Banking and Price Stability, Oxford: Oxford University Press.
 Hamilton, J.D., (1989), “A new approach to the economic analysis of nonstationary time series and the business cycle,” Econometrica, 57 (2), 357—384.
 Hamilton, J.D., (1994), Time Series Analysis. Princeton: Princeton University Press.
 Hansen, A. T. and R. Poulsen (2000), “A Simple Regime Switching Term Structure Model,” Finance and Stochastics, 4(4), 409-29.
 He, L. T., J. R. Webb, and F. C. N. Myer (2003), “Interest Rate Sensitivities of REIT Returns,” International Real Estate Review, 6, 1—21.
 Himmelberg, C., C. Mayer, and T. Sinai, (2005), “Assessing high house prices: bubbles, fundamentals and misperceptions,” Journal of Economic Perspective, 19, 67-92.
 Hott, C. and P. Monnin, (2008), Fundamental real estate prices: an empirical estimation with international data, Journal of Real Estate financial Economics, 36, 427-450.
 King, R., and M. Watson (1994) The Post-War U.S. Phillips Curve: A Revisionist Econometric History, Carnegie-Rochester Conference Series on Public Policy, 41, 157—219.
 King, R., and M. Watson (1997) Testing long-run neutrality, Federal Reserve Bank of Richmond Economic Quarterly, 83, 69-101.
 Laurent, R. D. (1988), An Interest-based Indicator of Monetary Policy, Economic Perspective, Federal Reserve Bank of Chicago, January/February, 3-14.
 Leeper, E.M., Sims, C.A., Zha, T., 1996, What does monetary policy do? Brookings Papers on Economic Activity 2, 1-63.
 Leung, C. K. Y. and W. L. Teo (2008), The Wall Street concerns might be right: equilibrium correlations of asset price do change with monetary policy, paper presented at the Asian Real Estate Society meeting.
 Ling, D. and A. Naranjo (1997), Economic Risk Factors and Commercial Real Estate Returns, Journal of Real Estate Finance and Economics, 15: 3, 283-307.
 Liu, C., and J. Mei. (1992), The Predictability of Returns on Equity REITs and Their Co-Movement with Other Assets, Journal of Real Estate Finance and Economics 5, 401-418.
 Lizieri, C. and S. Satchell (1997), “Property Company Performance and Real Interest Rates: a Regime Switching Approach,” Journal of Property Research, 14, 85-97.
 McCue, T. E. and J. L. Kling (1994), “Real Estate Returns and the Macroeconomy: Some Empirical Evidence from Real Estate Investment Trust Data 1972-1991,” Journal of Real Estate Research, 9(3), 277-87.
 Mishkin, F. (1990), “What does the term structure tell us about future inflation?,” Journal of Monetary Economics, 25, 77-95.
 Mueller, G. and K. Pauley (1995), “The Effect of Interest-rate Movements on Real Estate Investment Trusts,” Journal of Real Estate Research, 10(5), 319-325.
 Ong, S. E., J. Ooi and Y. Kawaguchi (2008), “Seasoned equity issuance by Asian REITs,” paper presented at the DePaul University REIT symposium.
 Ott, S., T. Riddiough and H. C. Yi (2005), “Finance, investment and investment performance: evidence from the REIT sector,” Real Estate Economics, 33(1), 203- 235.
 Plosser, C. and K. G. Rouwenhorst (1994), “International term structures and real economic growth,” Journal of Monetary Economics, 33, 133-155.
 Rosenberg, J. V., and S. Maurer (2008), “Signal or Noise? Implications of the Term Premium for Recession Forecasting,” forthcoming FRBNY Economic Policy Review.
 Sargent, T., N. Williams and T. Zha (2006), “Shocks and government beliefs: The rise and fall of American inflation,” American Economic Review 96, 1193-1224.
 Schwert, G. W. (1990), “Stock Volatility and the Crash of ’87,” Review of Financial Studies, 3(1), 77-102.
 Simpson, M. W., S. Ramchander and J. R. Webb (2007), “The Asymmetric Response of Equity REIT Returns to Inflation,” Journal of Real Estate Finance and Economics, 34(4), 513-529.
 Sims, C. (1980), “Macroeconomics and Reality,” Econometrica, 48(1), 1-48.
 Taylor, J. B. (1999), “Staggered Price and Wage Setting in Macroeconomics.” In Handbook of Macroeconomics, vol. 1B, edited by J. B. Taylor and M. Woodford. New York: Elsevier.
 Telmer, C. and S. Zin (2002), “Prices as factors: appoximation aggregation with incomplete markets,” Journal of Economic Dynamics and Control, 26, 1127-1157.
 Tsatsaronis, K. and H. Zhu (2004), “What drives housing price dynamics: crosscountry evidence,” BIS Quarterly Review, March, 65-78.
 Wang, K., J. Erickson, G. Gau and S. H. Chan (1995), “Market microstructure and real estate returns,” Real Estate Economics, 23(1), 85-100.