Abstract
This study aimed to establish and investigate the relationship between the real estate sector's financial performance and selected macroeconomic drivers, such as inflation, interest rates, industrial production, and foreign direct investment in South Africa over the past 15 years. Special focus was placed on COVID-19 impacts within the last years of the study. All data was in the form of secondary data, collected from the JSE and the South African Reserve Bank (SARB).
A GARCH and EGARCH model was used to identify the relationship that may exist between specific macroeconomic drivers: interest rate, inflation, industrial production, and foreign direct investment on identified REITs that have been listed from 2006 to 2021. A moderator variable known as COVID-19, as a dummy variable, was introduced to the study as a disruptive event. The study’s data collection period ran from March 2020 to December 2021. The results shows negligible weak correlations between real estate investment trusts and industrial production, inflation, prime lending rates and gold reserves. The GARCH and EGARCH model findings without the COVID variable indicate that bad news or negative shocks generate greater volatility on returns than positive shocks. Findings on the impact of COVID on REITS returns and volatility, using EGARCH findings in the COVID-19 model, confirm the presence of asymmetries in REITS returns. This indicates that REIT stocks responded differently to positive and negative news. The negative coefficient shows that negative shocks generated greater volatility on REIT returns than positive news.
Keywords
South African REITs, Macroeconomic drivers, COVID-19, GARCH, EGARCH