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Climate Risks and Prediction of Sectoral REITs Volatility: International Evidence

Author

Listed:
  • Afees A. Salisu

    (Centre for Econometrics & Applied Research, Ibadan, Nigeria; Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

  • Ahamuefula E. Ogbonna

    (Centre for Econometrics & Applied Research, Ibadan, Nigeria)

  • Elie Bouri

    (School of Business, Lebanese American University, Lebanon)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract
This study examines the nexus between climate risks and the return volatility of the real estate investment trusts (REITs) market, a topic of increasing importance for market participants in both emerging and developed economies. Using sectoral REITs from 14 selected countries and alternative measures of climate risks involving both country-specific (climate change vulnerability index, based on climate news) and global (climate policy uncertainty index) measures, reflecting both physical and transition climate risks, we apply a predictive model that accommodates the salient features of the data. Our results indicate that REIT volatility generally increases in response to climate policy uncertainty in most countries. However, the resilience of REITs to the adverse effects of climate change is underscored, providing a sense of confidence in the market's ability to withstand these climate challenges. This outcome transcends the in-sample predictability as the out-of-sample forecast performance validates the predictive content of climate change risks for REITs return volatility. The findings have important practical and policy implications.

Suggested Citation

  • Afees A. Salisu & Ahamuefula E. Ogbonna & Elie Bouri & Rangan Gupta, 2024. "Climate Risks and Prediction of Sectoral REITs Volatility: International Evidence," Working Papers 202434, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202434
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Climate risks; emerging and developed economies; sectoral REITs; realized volatility; feasible quasi-generalized least squares (FQGLS) method; forecast evaluation;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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