Re-investigating the anomalous relationship between inflation and equity REIT returns: A regime-switching approach

This paper re-investigates the anomalous relationship between inflation and equity REIT returns in the USA by introducing regime consideration in the modeling approach and including additional relevant variables viz., relative price variability and output growth in the relationship. By applying both the observed and unobserved regime switching vector autoregressive model, this paper makes an attempt to explain the hitherto observed anomalous negative relationship between REIT returns and inflation. It is evident from the results that this negative relationship between REIT returns and inflation is merely a proxy for the effectiveness of relative price variability and output growth on REIT returns.