Geopolitical risk and the dynamics of REITs returns

The aim of this study is to analyze the relative importance of geopolitical risk (GPR), as introduced by Caldara and Iacoviello (2022), on the dynamics of U.S. REITs returns. Using an extended conditional version of Fama and French (1993)’s capital asset pricing model, we highlight the role played by GPR and its two components, geopolitical acts (GPA) and geopolitical threats (GPT), on the expected returns of securitized real estate. Our robust results report the level and the significant of the geopolitical risk metrics on the decomposition of REITs returns grouped into different portfolios (from CRSP/Ziman series). We shed light on the link between the characteristics of REITs and the relative importance of geopolitical risk during the last decades. •Analysis of geopolitical risk indices, GPR, on the dynamics of US REITs returns.•A conditional version of Fama-French (1993)’s model including GPR indices is tested.•GPR index and its components, geopolitical threats, GPT, and acts, GPA, are priced.•The robust estimates of GPR indices are statistically significant and low for REITs.•US REITs returns are more sensitive to geopolitical acts, GPA, than to threats, GPT.