This paper broadens the range of macroeconomic factors influencing the real estate investment trusts (REITs) index of the Euro area (EU-REIT Index). In addition to traditional determinants, we incorporate new variables, including the business cycle, bond yields, producer price index (PPI), industrial production, private sector credit, hourly earnings in manufacturing, construction volumes and residential building permits.
Using quarterly data on the EU-REIT Index from Q3 2006 to Q4 2019, the study applies the Granger causality test within a vector error correction model framework, based on the autoregressive distributed lag model, to examine both the short- and long-run relationships between the EU-REIT Index and an extended set of macroeconomic drivers. Furthermore, the robustness of the forecasting model is evaluated using root mean squared error, mean absolute error, mean absolute percentage error and Theil's U2 statistic.
Macroeconomic factors such as the business cycle exhibit cyclical effects, while the PPI, industrial production, private sector credit and hourly earnings in manufacturing show a negative causal impact on the REIT index. In contrast, construction volumes and residential building permits demonstrate a positive causal relationship. Overall, the inclusion of these new variables significantly enhances the forecasting accuracy of REIT models.
This study provides a more comprehensive understanding of REIT performance by expanding the set of macroeconomic factors considered in REIT dynamics, improving forecasting and investment decision-making.
The analysis validates the relevance of these newly proposed macroeconomic variables for performance assessment and forecasting in the context of REITs, offering fresh insights into their market behavior.
