Effects of COVID-19 on the relationship between inflation and REITs returns in South Africa

Abstract

Purpose

This research aims to ascertain the extent to which the coronavirus disease 2019 (COVID-19) epidemic affected the relationship between inflation and real estate investment trusts (REITs) returns in South Africa.

Design/methodology/approach

This research used the Johansen cointegration test and effective test in establishing if there is a long-run cointegrating equation between the variables. To ascertain if COVID-19 resulted in a different relationship regime between inflation and REITs returns, the sequential Bai–Perron method was used.

Findings

Between December 2013 and July 2022, there was no evidence of a long-run relationship between inflation and REITs returns, and a restricted vector autoregressive (VAR) model with a period lag for each variable best describing the relationship. Using the sequential Bai–Perron method, for one break, the results show February 2020 as a structural break in the relationship. A cointegrating equation is also found for the period before the structural break and another after the break. Interestingly, the relationship is negative before the break and a new positive relationship (regime) is confirmed after the noted break.

Practical implications

This research helps REITs stakeholders to position themselves in light of any changes to macroeconomic activity within South Africa.

Originality/value

This is one of the first studies to test inflation relationship with REITs returns in South Africa and the effects of COVID-19 thereof. This research helps REITs stakeholders to position themselves in light of any changes to macroeconomic activity within South Africa.

Citation

Mpofu, B., Moobela, C. and Simbanegavi, P. (2023), "Effects of COVID-19 on the relationship between inflation and REITs returns in South Africa", Journal of Property Investment & Finance, Vol. 41 No. 5, pp. 506-522. https://doi.org/10.1108/JPIF-10-2022-0072