Analysing the relationship between global REITs and exchange rates: Fresh evidence from frequency-based quantile regressions
DOI:
https://doi.org/10.47654/v25y2021i3p58-91Keywords:
Empirical mode decomposition, Exchange rates, REITs, Quantile regressions, Frequency-dependence, Intrinsic Mode FunctionAbstract
This paper contributes to knowledge by investigating the asymmetric dependence structure between the real estate investment trusts (REITs) and currencies from Europe, North America, Asia, and Australasia. We employ the Ensemble Empirical Mode Decomposition (EEMD) technique to decompose price return series into short-term, medium-term, and long-term scales termed as Intrinsic Mode Functions (IMFs) and further examine the asymmetric association between selected country REITs indices and their respective exchange rates (against the dollar) using both Quantile Regression Analysis (QRA) and Quantile-in-Quantile Regression (QQR) techniques. 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 Germany, Hong Kong, Japan, and Singapore as another group in terms of direction, magnitudes, and at which time horizons they occur. Positive and negative associations in Asia are the strongest across quantiles in the long-term. The study reveals the effect of exchange rates on the selected REITs market and the important role played by currencies in the decision-making process of international investors. We contribute to the literature adaptive market hypothesis (AMH) and heterogeneous market hypothesis (HMH). The frequency-based quantile regressions address non-linearity, asymmetry, time-horizon dependent, and non-homogeneous relationships in the markets espoused by both AMH and HMH. Furthermore, 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. Findings from this study engender new insights into REITs investments in light of exchange rate fluctuations amidst market inefficiencies.
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