Islamic REIT response to macroeconomic factors: a markov regime switching auto regressive approach

Morad, Shahidah Nailul and Masih, Mansur (2015): Islamic REIT response to macroeconomic factors: a markov regime switching auto regressive approach.

Abstract

This paper intends to compare the returns of shariah-compliant (Islamic) REITs with non-shariah compliant REITs listed on the London Stock Exchange, Singapore Stock Exchange and Kuala Lumpur Stock Exchange (Malaysia) against the movement of US inflation and interest rates. A Markov regime switching auto regressive model is applied to capture the unobserved component present in the market during the sample period. The results tend to provide empirical evidence that while there exist different regimes in all three markets, the regimes for shariah compliant REITs on LSE is not well defined. Meanwhile the returns of shariah-compliant REITs are lower compared to non-shariah compliant REITs with US interest rates being significant in all three markets but US inflation rates significantly affecting only the LSE and SGX REITs.

• Item Type: MPRA Paper
• Language: English
• Keywords: Shariah (Islamic) REIT Index, diversification, Markov regime switching
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions

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