Dynamic relationship between macroeconomic variables and returns on Turkish rela estate investment trusts

Abstract

The purpose of this thesis is to examine the dynamic relationship between the returns on Turkish real estate investment trusts (REITs) and macroeconomic variables for the period between 2000 and 2011. Market returns, industrial production, inflation, unexpected inflation, overnight interest rate, term premium, and default risk premium are used as macroeconomic variables in the analysis. The models are estimated for the whole period, January 2000 – December 2011 as well as for the subperiod excluding the 2000-2001 crisis. Unrestricted vector autoregressive model, variance decomposition and generalized impulse response techniques are employed to capture the feedback mechanism between macroeconomic variables and REIT returns. The results of the variance decomposition analysis show that macroeconomic variables explain almost half of the total variation in REIT returns for the whole sample period. This proportion increases to 63% when the crisis period is eliminated. Although there is not a dominant factor, industrial production, inflation, market returns and term structure are found to be important variables to explain the variability of REIT returns. Generalized impulse response analysis shows that unexpected shocks in the stock market and default risk premium have positive impact on Turkish REIT returns whereas unexpected shocks on overnight interest rate and term premium have negative effect. However, shocks to inflation and industrial production are not found to have significant impact on REIT returns. Some differences among REITs are observed depending on whether the major shareholder of the REIT is a bank or a construction company.