Examining the Integration Between US REITs, Stock Returns, Bonds and Inflation

This study examines the integration of US-listed REITs, stock prices, bonds and inflation on a monthly basis from 1980 to 2014. In contrast to many existing studies, the analysis focuses on the long run relationships and economic linkages among these securities, applying multiple cointegration tests and vector autoregressive models. The results show that the REIT market behaved more like bonds before the 1993 structural tax change and more like stocks afterwards. This could be a result of the institutionalization of the ownership of larger cap REITs that took place after the structural tax change in 1993. Overall, results suggest that the benefits of diversification by including REITs in multiasset portfolios slightly diminish in the 1990s but remain somewhat of a hedge for inflation.