The Impact of Monetary Policy on REITs: Evidence from FOMC Announcements

Abstract

This paper examines the response of equity and mortgage REITs to changes in the stance of monetary policy using an event study with intraday data. Monetary news around Federal Reserve’s announcements are decomposed into three types of surprise: changes in the current federal funds target rate, forward guidance and large-scale asset purchases. Estimation results show that monetary surprises have economically important and significantly negative effects on equity REITs. Around monetary announcements equity REIT returns are mostly spanned by US common stocks, while mortgage REITs maintain some distinct exposure to interest rate risks.