Analyzing the relationship between global REITs and exchange rates: Fresh evidence from frequency-based quantile regressions

Abstract

Purpose: This paper investigates the asymmetric dependence structure between real estate investment trusts (REITs) and currencies from Europe, North America, Asia, and Australasia. Design/methodology/approach: The papers uses the Ensemble Empirical Mode Decomposition (EEMD) technique to decompose return series into short-term, medium-term, and long-term scales termed Intrinsic Mode Functions (IMFs) and further examines the asymmetric association between selected country REIT indices and their respective exchange rates (against the dollar) using both Quantile Regression Analysis (QRA) and Quantile-in-Quantile Regression (QQR) models. Findings: Both QRA and QQR adequately capture the frequency-variant asymmetric link between REITs and exchange rates across different geographical locations. Associations are similar for Australia, Canada, France, and New Zealand as a group and for Germany, Hong Kong, Japan, and Singapore as another group in terms of direction, magnitude, and time horizons at which they occur. Positive and negative associations in Asia are the strongest across quantiles in the long-term. Originality/value: The current literature on REITs-macroeconomic nexus is largely linear, asymmetric and does not address the impact on market noise. We contribute to the literature by employing a noise-reduction technique to the relationship between REITs and exchange rates. This approach reinforces the inefficient market hypothesis in the REITs-macroeconomic nexus. These are supported by the adaptive market hypotheses (AMH) and heterogeneous market hypotheses (HMH). Practical implications: The study reveals the effect of exchange rates on the selected REITs market and the important role of currencies in international investors' decision-making process. The study reinforces the inefficient market hypothesis in the REIT-macroeconomic nexus. Further, this study engenders new insights into REIT investments in light of exchange rate fluctuations amidst market inefficiencies.