2024 Reports

REIT Equity Financing and Capital Investment in the Presence of the Central Bank Put

Hattori, Takahiro; Yoshida, Jiro

This is the first study to show that the Bank of Japan's (BOJ) unconventional monetary policy of purchasing shares of real estate investment trusts (REITs) affects the real economy through equity-financed investment. Specifically, the paper first shows that the BOJ purchases REIT shares after observing a significantly negative cumulative overnight-morning return. This put-option-like downside protection to the REIT market has a positive market-wide effect on intraday returns in proportion to each REIT's exposure to BOJ equity demand. The targeted REITs are more likely to issue equity and invest the raised capital in real assets, consistent with the BOJ's intention to stimulate corporate spending by lowering the cost of capital. However, this investment response is limited to the targeted REITs.

Keywords: equity public offerings, large-scale asset purchases (LSAP), quantitative easing (QE), central banking, real estate investment trust, unconventional monetary policy

JEL codes: E52, E58, R33