Browsing by Author "Alm, Valther"

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    The Impact of Interest Rate Hikes and Cuts on U.S. REITs: The Role of Financial Leverage
    (2025-07-01) Alm, Valther; Nilsson, Casper; University of Gothenburg/Department of Economics; Göteborgs universitet/Institutionen för nationalekonomi med statistik; University of Gothenburg/Department of Business Administration; Göteborgs universitet/Företagsekonomiska institutionen
    This study examines whether U.S. equity REITs with different capital structures react differently to interest rate changes. An event study approach is used to analyze cumulative abnormal returns (CARs) around two Federal Reserve interest rate announcements: a 75 basis point rate hike on 2 November 2022 and a 50 basis point rate cut on 18 September 2024. The sample includes 158 listed REITs using daily total return data from CRSP and financial metrics from Compustat. Cross-sectional regressions incorporate firm leverage, market beta, idiosyncratic volatility, size, earnings-announcement and sector affiliation. The findings reveal an asymmetric market response. The rate hike led to an average CAR of minus 0.94 percent, but firms with higher leverage experienced smaller losses. The result challenges the idea that increased leverage inherently leads to greater risk in a rising rate environment. In contrast, the rate cut produced a slightly negative CAR on average (minus 0.12 percent) and leverage showed no statistical significance. Only market beta and firm size explained limited cross-firm variation. These results suggest that the impact of monetary policy on REIT valuations depends on both the direction of the rate change and firm level financial characteristics, including debt structure and hedging strategies, highlighting the need for a more nuanced understanding of capital structure regarding publicly traded U.S REITs.