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

PurposeThis 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/approachThis 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.FindingsBetween 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 implicationsThis research helps REITs stakeholders to position themselves in light of any changes to macroeconomic activity within South Africa.Originality/valueThis 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.