Home • PRRES Inc. Journal • Read the Journal

Causal effects of macroeconomic predictors on real estate investment trust’s (REIT’s) performance in Nigeria

Author/s: Olusegun O. Olanrele, Oluwatosin B. Fateye, Tomisi O. Adegunle, C. A Ajayi, Rosli Said, Kurannen Baaki

Date Published: 03/05/2020

Published in: Volume 26 - 2020 Issue 2 (pages 149 - 171)

Abstract

The paper examined the causal effects of macroeconomic predictors on the dividend return performance of the Nigerian Real Estate Investment Trusts (N-REITs) the macroeconomic indicators considered was interest rate (INTR), an exchange rate (EXGR), inflation rate (INFR), market capitalisation (MKCP) and all share index (ASI). The study is quantitative based on secondary data collected from various government institutions and annual financial reports of the Nigeria REITs for the study period (2008–2017). Autoregressive-distributed lag (ARDL) and Bound test were used to analyse the data. The result of the Bound test indicated that N-REIT, INTR and ASI with F-statistic values of 11.07, 5.71 and 4.18, respectively, co-integrated with other macroeconomic predictors, especially for the variable vectors. ASI with t-stat and prob. value 2.9491 and 0.0065, respectively, implies statistically significant contribution of ASI to REIT performance in the long run (p < 0.05). Through ECM, the series was good at convergence and nonexplosive series ect (?1): ?4.98 and p-value 0.0000, the macroeconomic predictors have significant explanatory power on N-REIT performance in the short run. The no capital gain nature of the N-REIT constitutes a limitation in this study, while the competitive dividend return is the driving force for the study.

Download Full Article

Download the Full Article PDF

14445921.2020.1857498.pdf 14445921.2020.1857498.pdf (1MB)

Keywords

Bound Test - Co-Integration - Dividend Yield - Macroeconomics - Nigeria - Reit Performance

References

  • Adamu, P. A. (2005) The impact of exchange volatility on private investment in Nigeria: An error correction representation, The Nigerian, Journal of Economics and Social Studies. 47(2), –.p:301-317. The Nigerian, Journal of Economics and Social Studies.
  • African Development Bank. (2019) African economic outlook,.Retrieved from https://www.afdb.org/en/knowledge/publications/african-economic-outlook/
  • Ajide, K. B. (2014) Determinants of economic growth in Nigeria, CBN Journal of Applied Statistics. 5(2), –.p:147-170. CBN Journal of Applied Statistics.
  • Akimov, A.Stevenson, S.Zagonov, M. (2015) Public real estate and the term structure of interest rates: a cross-country study, The Journal of Real Estate Finance and Economics. 51(4), p:503-540. The Journal of Real Estate Finance and Economics.
  • Akinsomi, O.Coskun, Y.Gupta, R. (2016) Analysis of Herding in REITs of an Emerging Market: The Case of Turkey, Retrieved from http://www.up.ac.za/media/shared/61/WP/wp_2016_66
  • Allen, M.Madura, J.Springer, T. (2000) REIT characteristics and the sensitivity of REIT returns, The Journal of Real Estate Finance and Economics. 21(2), p:141-152. The Journal of Real Estate Finance and Economics.
  • Anyanwu, S.Aiyedogun, J. O. S.Ohwofassa, B. O. (2013) FDI in real sector and economic growth in Nigeria (1989-2011): A Parsimonious error correlation model, Journal of Economics and Sustainable Development. 6(5), Journal of Economics and Sustainable Development.
  • Arora, P.Killins, R.Gangineni, P. (2019) REIT-specific and macroeconomic determinants of REIT returns: Evidence from Singapore, Accounting and Finance. 8(30), p:27-42. Accounting and Finance.
  • Asteriou, D.Begiazi, K. (2013) Modeling of daily REIT returns and volatility, Journal of Property Investment and Finance. 31(6), p:589-601. Journal of Property Investment and Finance.
  • Atkinson, A. B. (1969) The timescale of economic models: How long is the long run?, Review of Economic Studies. 36(2), , –.p:137-151. Review of Economic Studies.
  • Azmin, N. A. M.Shariff, A. M. (2016) The relationship of macroeconomics variables with REIT Performance: The case of Malaysia Companies, Journal of Applied Environmental and Biological Sciences. 6(6s), p:1-7. Journal of Applied Environmental and Biological Sciences.
  • Adrangi, B., Chatrath, A., Raffiee, K. (2004), REIT investments and hedging against inflation, Journal of Real Estate Portfolio Management, 10(2), 97–112.
  • Barkham, R. J.Ward, C. W. R.Henry, O. T. (1996) The inflation hedge characteristics of UK property, Journal of Property Finance. 7(1), p:62-76. Journal of Property Finance.
  • Bello, O. M. (2000) Risk management in the process of property development construction in Nigeria, Journal of the Federation of Construction Industry. 15(3), –.p:15-23. Journal of the Federation of Construction Industry.
  • Bello, O. M. (2005) The inflation hedging attributes of investments in Real Estate, ordinary shares and naira denominated deposits between 1996 and 2002, Journal of Banking. 1(1), –.p:1-28. Journal of Banking.
  • Bredin, D.O‘Reilly, G.Stevenson, S. (2006) Monetary shocks and REIT returns, A Paper Presented at the Pacific Rim Real Estate Society Annual Conference.
  • Bredin, D.O‘Reilly, G. A.Stevenson, S. (2008) Monetary policy & real estate investment trusts, (2008) Banking & Finance Subject Area UCD Business Schools WP08/12.
  • Bredin, D.O’Reilly, G.Stevenson, S. (2010) Monetary policy transmission and real estate investment trusts, International Journal of Finance and Economics. 16(1), p:92-102. International Journal of Finance and Economics.
  • Bruegeman, W. B.Chen, A. H.Thibodeau, T. G. (1992) Some additional evidence on the performance of commingled real estate investment funds 1972–1991, Journal of Real Estate Research. 7, p:433-448. Journal of Real Estate Research.
  • Chua, Y. P. (2009) Advanced research statistics: Regression test, factor analysis and SEM analysis. Shah Alam, Selangor - Malaysia:McGraw-Hill Education. Advanced research statistics: Regression test, factor analysis and SEM analysis.
  • Conner, P.Liang, Y. (2005) The complex interaction between real estate cap rates and interest rates, Briefings in Real Estate Finance. 4(3), p:185-197. Briefings in Real Estate Finance.
  • Cotter, J.Stevenson, S. (200) Multivariate modelling of daily REIT Volatility, Journal of Real Estate Finance & Economics. Journal of Real Estate Finance & Economics.
  • Cotter, J.Stevenson, S. (2006) Multivariate Modeling of Daily REIT Volatility, Journal of Real Estate Finance and Economics. 32(3), p:305-325. Journal of Real Estate Finance and Economics.
  • Devaney, M. (2001) Time varying risk premia for real estate investment trusts: A GARCH-M model, The Quarterly Review of Economics and Finance. 41(3), –.p:335-346. The Quarterly Review of Economics and Finance.
  • Diala, O. A.Kalu, I. U.Igwe-Kalu, A. (2016) Effect of exchange rate volatility on commercial property returns in Nigeria, African Journal of Accounting, Economics, Finance and Banking Research. 10(10), p:30-45. African Journal of Accounting, Economics, Finance and Banking Research.
  • Dickey, D. (1979) “Distribution of the Estimators for Autoregressive Time Series With a Unit Root.„, Journal of the American Statistical Association. JASA. ,. and W. Fuller .p:74. Journal of the American Statistical Association.
  • Ewing, B. T.Payne, J. E. (2005) The response of real estate investment trust to macroeconomics shock, Journal of Business Research. 58(3), p:293-300. Journal of Business Research.
  • Fang, H.Chang, T. Y.Lee, Y. H.Chen, W. J. (2016) The impact of macroeconomics factors on the real estate investment trust index return in Japan, Singapore and China, Investment Management and Financial Innovations. 13(4), p:242-253. Investment Management and Financial Innovations.
  • Goebel, P. R.Harrison, D. M.Mercer, J. M.Whitby, R. J. (2013) REIT momentum and characteristics-related REIT returns, Journal of Real Estate Finance and Economics. 47(3), p:564-581. Journal of Real Estate Finance and Economics.
  • Greene, W. H. (2008) The econometric approach to efficiency analysis, The Measurement of Productive Efficiency and Productivity Growth. (32). , (3), 305–325.The Measurement of Productive Efficiency and Productivity Growth.
  • Hamelink, F.Hoesli, M. (1996) Swiss real estate as a Hedge against inflation: Evidence using hedonic and auto regressive models, Journal of Property Finance. 7(1), p:33-49. Journal of Property Finance.
  • Hamelink, F.Hoesli, M.MacGregor, B. (1997) Inflation Hedging versus inflation protection in the US and UK, Real Estate Finance. 14(2), p:63-73. Real Estate Finance.
  • Hoesli, M. (1994) Real estate as a hedge against inflation: Learning from the Swiss Case, Journal of Property Valuation and Management. 12(3), –.p:51-59. Journal of Property Valuation and Management.
  • Hoesli, M.Liziei, C.MacGregor, B. (2008) The inflation hedging characteristics of US and UK investments. A multi factor error correction approach, Journal of Real Estate Finance and Economics. 36(2), p:183-206. Journal of Real Estate Finance and Economics.
  • Hoesli, M.Matysiak, B.Nanthakumaran, N. (1996) The long-term inflation hedging characteristics of UK commercial property, Journal of Property Finance. 7(1), p:50-61. Journal of Property Finance.
  • Hoesli, M.Reka, K. (2015) Contagion channels between real estate and financial markets, Real Estate Economics. 43(1), p:101-138. Real Estate Economics.
  • Huang, M.Wu, C. C. (2015) Economic benefits and determinants of extreme dependences between REIT and stock returns, Review of Quantitative Finance and Accounting. 44(2), Review of Quantitative Finance and Accounting.
  • Huang, M.Wu, C. C.Liu, S. M.Wu, C. C. (2016) Facts of fates of investors’ losses during crises? Evidence from REIT-stock volatility and tail dependence structures, International Review of Economics and Finance. 42, p:54-71. International Review of Economics and Finance.
  • Ifeakackukwu, N. P.Ditimi, A. (2014) Capital inflow and exchange rate in Nigeria, Mediterranean Journal of Social Sciences. 7, p:263-272. Mediterranean Journal of Social Sciences.
  • Ito, T. (2013) Do interest rate and stock price have an impact on REIT market in Japan, The 2013 WEI International Academic Conference Proceedings. (24)., (1), 47–78.
  • Kim, J. W.Leatham, D. J.Bessler, D. A. (2007) REITs’ dynamic under structural change with unknown break points, Journal of Housing Economics. 16(1), p:37-58. Journal of Housing Economics.
  • Kodongo, O.Ojah, K. (2014) Conditional pricing of currency risk in Africa’s equity markets, Emerging Markets Review. 21, p:133-155. Emerging Markets Review.
  • Kola, K.Kodongo, O. (2017) Macroeconomics risks and REIT returns: A comparative analysis, Research in International Business and Finance. 42, p:1228-1243. Research in International Business and Finance.
  • Laopodis, N. (2009) REITs, the stock market and economic activity, Journal of Property Investment and Finance. 27(6), –.p:563-578. Journal of Property Investment and Finance.
  • Lee, C. L.Lee, M. L. (2014) Do European Real Estate stocks hedge inflation? Evidence from developed and emerging markets, International Journal of Strategic Property Management. 18(2), p:178-197. International Journal of Strategic Property Management.
  • Lee, C. L.Lee, M.-L. (2012) Hedging effectiveness of REIT futures, Journal of Property Investment and Finance. 30(3), p:257-281. Journal of Property Investment and Finance.
  • Lee, C. L.Stevenson, S.Lee, M. L. (2018) Low frequency volatility of real estate securities and macroeconomic risk, Accounting and Finance. 58(S1), p:311-342. Accounting and Finance.
  • Lee, S. L. (2001) The risk of investing in Real Estate markets of the Asian region working paper. UK:University of Reading. The risk of investing in Real Estate markets of the Asian region working paper.
  • Lee, S. L.Thomas, M. (2006) Impact of exchange rates on international real estate portfolio, Journal of Real Estate Portfolio Management. 12(3), p:277-292. Journal of Real Estate Portfolio Management.
  • Liu, C.Mei, J. (1992) The predictability of returns on equity REITs and their co-movement with other assets, Journal of Real Estate Finance and Economics. 5(4), p:401-418. Journal of Real Estate Finance and Economics.
  • Loo, W. K.Annuar, M. A.Ramakrishan, S. (2016) Integration between Asian REIT markets and macroeconomic variables, Journal of Property Investment and Finance. 34(1), p:68-82. Journal of Property Investment and Finance.
  • Ma’in, M.Arifin, N. A. M.Hatta, M. F. M.Hashim, M. H.Isa, S. S. M. (2016) Determinants of Islamic real estate investment trust performance, Advanced Science Letters. 22(12), p:4321-4325. Advanced Science Letters.
  • Mah, J. (2000) An empirical examination of the disaggregated import demand of Korea - the case of information technology product, Journal of Asian Economics. 11(2), pp –.p:237-244. Journal of Asian Economics.
  • Manni, C.Teng, X. C. (2007) Investigation on the Real Estate Market. What are the main factors influencing the performance of the French real estate investment trust, (2007) School of Economics, UMEA University, Sweden.
  • Maurer, R.Sebastian, S. P. (2002) Inflation risk analysis of European real estate securities, Journal of Real Estate Research. 24, Journal of Real Estate Research.
  • McCue, T. E.Kling, J. K. (1994) Real estate returns and the macroeconomy: Some empirical evidence from real estate investment trust data, 1972–1991, Journal of Real Estate Research. 9, p:277-287. Journal of Real Estate Research.
  • Mordi, C. N. O. (2006) Challenges of exchange rate volatility in economic management in Nigeria, CBN Bulletin. 30(3), –.p:17-25. CBN Bulletin.
  • NBS. (2016) The Nigeria bureau of statistics annual report, (2016).Retrieved from www.nigerianstat.gov.ng
  • Newell, G. (1996) The inflation hedging characteristics of Australian commercial property 1984–1995, Journal of Property Finance. 7(1), –.p:6-20. Journal of Property Finance.
  • NNPC. (2016) Monthly financial and operations report for December, 2016, (2016).Retrieved from www.nnpcgroup.com
  • Olaniyi, Z. O.Adedokun, M. A.Ogunleye, A. A.Oladokun, Y. O. (2015) An empirical analysis of the contribution of agricultural sector to Nigerian GDP: Implication for economic development, Journal of Developing Country Studies. 5, p:21. Journal of Developing Country Studies.
  • Olanrele, O. O. (2016) Analysis of the performance and acceptance of real estate investment trusts in Nigeria, (PhD), University of Malaya. Kuala Lumpur, Malaysia: (2016).
  • Olanrele, O. O.Said, R.Daud, M. N. (2014) Real estate investment trust (REIT) in Nigeria:The influence of external factors on return, Paper presented at the 14th Africa Real Estate Society (AfRES) Annual Conference.
  • Olanrele, O. O.Said, R.Daud, M. N. (2015) An evaluation of the performance and acceptability of REIT in Nigeria, Paper presented at the African Real Estate Society (AFRES) Annual Conference 2015.
  • Osinubi, T. S.Amaghonyeodiwe, L. A. (2009) Foreign direct investment and exchange rate volatility in Nigeria, International Journal of Applied Econometrics and Quantitative. 6(2), p:83-116. International Journal of Applied Econometrics and Quantitative.
  • Ozdemir, A. (2011) Using a binary logistic regression method and GIS for evaluating and mapping the groundwater spring potential in the sultan mountains (Aksehir, Turkey, Journal of Hydrology. 405(1–2), –.p:123-136. Journal of Hydrology.
  • Pallant, J. (2011) SPSS survival manual A step by step guide to data analysis using the SPSS program. (4th Edition ed.). Berkshire.: . ,Allen & Unwin.
  • Park, J.Mullineaux, D. J.Chew, I. K. (1990) Are REITs Inflation Hedges?, Journal of Real Estate Finance and Economics. 3(3), p:5-23. Journal of Real Estate Finance and Economics.
  • Pesaran, M. H.Shin, Y. (1999) An autoregressive distributed lag modelling approach to cointegration analysis, Econometrics and economic theory in the 20th century. The Ragnar Frisch Centennial Symposium, Cambridge, Cambridge University Press, 371–413. Econometrics and economic theory in the 20th century.
  • Pesaran, M. H.Shin, Y.Smith, R. J. (2001) Bound testing approaches to the analysis of level relationships, Journal of Applied Econometrics. 16(3), p:289-326. Journal of Applied Econometrics.
  • Phillips, P.C.B. (1988) “Testing for Unit Roots in Time Series Regression,”, Biometrika. and P. Perron (, 75). , –p:335-346. Biometrika.
  • Quan, D. C.Titman, S. (1997) Commercial Real Estate prices and stock market returns and international analysis, Financial Analyst Journal. 53(3), p:21-34. Financial Analyst Journal.
  • Schwarz, G. (1978) The Annals of Statistics. “Estimating the Dimension of a Model,„ 6, , –p:461-464. The Annals of Statistics.
  • Shu, B.Zhung, H.Li, Y.Qu, Y.Chen, L. (2014) Spatiotemporal variation analysis of driving forces of urban land spatial expansion using logistic regression: A case study of port towns in Taicang City, China, Habitat International. 43, p:181-190. Habitat International.
  • Simo-Kengne, B. D.Miller, S. M.Gupta, R.Balcilar, M. (2016) Evolution of the monetary transmission mechanism in the US: The role of asset returns, Journal of Real Estate Finance and Economics. 52(3), p:226-243. Journal of Real Estate Finance and Economics.
  • Simpson, M. W.Ramchander, S.Webb, J. R. (2007) The asymmetric response of equity REIT returns to inflation, Journal of Real Estate Finance and Economics. 34(4), p:513-529. Journal of Real Estate Finance and Economics.
  • Tabachnick, B. G.Fidell, L. S. (2007) Using multivariate statistics. Boston: Allyn and Bacon. Using multivariate statistics.
  • Tarbet, H.McAllister, P. (1998) Property and currency markets: Analysing the correspondence, Paper presented at the American Real Estate Society (ARES) Conference.
  • Thomas, M.Lee, S. (2006) The impact of exchange rates on international real estate portfolio allocation, Journal of Real Estate Portfolio Management. 12(3), p:277-291. Journal of Real Estate Portfolio Management.
  • Vatcheva, K. P.Lee, M. J.McCormick, J. B.Rahbar, M. H. (2016) Multicollinearity in regression analyses conducted in epidemiologic studies, Epidemiology (Sunnyvale). April. 6(2), Epidemiology (Sunnyvale). April.
  • Williams, R. (2015) Multicollinearity,University of Notre Dame. Retrieved from https://www3.nd.edu/-rwilliams/
  • Wong, W. W.Reddy, W. (2018) Evaluation of Australian REIT performance and the impact of interest rates and leverage, International Real Estate Review. 21(1), p:41-70. International Real Estate Review.
  • World Bank. (2016) World bank report on emerging economies,.Retrieved from https://data.worldbank.org
  • Wurstbauer, D.Schafers, W. (2015) Inflation hedging and protection characteristics of infrastructure and real estate assets, Journal of Property Investment and Finance. 33(1), p:19-44. Journal of Property Investment and Finance.
  • Yunus, N. (2012) Modeling relationship among securitized property market, stock market and macroeconomic variables, Journal of Real Estate Research. 34(2), –.p:127-156. Journal of Real Estate Research.