Abstract
We study contagion between Real Estate Investment Trusts (REITs) and the equity market in the U.S. over four sub-samples covering January, 2003 to December, 2017, by using Bayesian nonparametric quantile-on-quantile (QQ) regressions with heteroskedasticity. We find that the spillovers from the REITs on to the equity market has varied over time and quantiles defining the states of these two markets across the four sub-samples, thus providing evidence of shift-contagion. Further, contagion from REITs upon the stock market went up during the global financial crisis particularly, and also over the period corresponding to the European sovereign debt crisis, relative to the pre-crisis period. Our main findings are robust to alternative model specifications of the benchmark Bayesian QQ model, especially when we control for omitted variable bias using the heteroskedastic error structure. Our results have important implications for various agents in the economy namely, academics, investors and policymakers.