Impact of financial stress on the REIT market stability

We are aware of real estate prices collapsing during the global financial crisis when financial stress was severe. However, the relationship between financial stress and Real Estate Investment Trusts (REIT) market fluctuation has not been sufficiently investigated. This study aims to uncover whether changes in financial stress have significant, asymmetric, and nonlinear impacts on the volatility in REIT returns in time horizons and lead to stabilizing/destabilizing outcomes in the REIT market. We examined the impact of U.S. financial stress as a proxy for global financial stress on the volatility of REIT returns in the short-, medium-, and long-term, considering the role of asymmetry and regime changes. We found that rising global financial stress disrupts financial stability in the REIT market. We also showed that the impact of increases and decreases in financial stress is larger than the impact of the role of regimes regarding the REIT market's long-term volatility. This finding is important for policymakers regulating real estate markets and financial market investors managing risk in their portfolios, as the transmission of global financial stress is highly dominant. • Relationship between financial stress and Real Estate Investment Trusts (REIT) market fluctuation is investigated. • Changes in U.S. financial stress have significant, asymmetric, and nonlinear impacts on the volatility in REIT returns. • Rising global financial stress disrupts financial stability in the REIT market. • The impact of financial stress is larger than the role of regimes regarding the REIT market's long-term volatility.