Cash Flow and Discount Rate News in REIT Returns

Unlike stocks, unexpected returns of REITs (real estate investment trusts) are mainly driven by adjustments (called ``news'') in expected dividend growth as opposed to discount rates. The importance of REIT cash flow news is strong before and during the GFC, but also during the Dotcom period which was not rooted in the real estate market. Despite being largely neglected in the ``news'' literature, the REIT market is instrumental in the transmission of financial shocks. Our finding is also relevant for monetary policy response to asset prices which is optimally targeted to shocks in the housing market rather than stock markets