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Abstract
Executive Summary. This study performs a complete set of Granger causality tests to examine different types of causal relationships between apartment real estate investment trust (REIT) stock returns and changes in unsecuritized residential real estate. Results of causality tests provide evidence that stock returns for apartment REITs Granger-cause alterations in new housing starts. On the other hand, changes in both new house prices and new housing starts provide relevant and useful information/feedback to revise expectations of unsecuritized residential real estate returns/cash flows. In addition, a very strong positive contemporaneous causality between apartment REIT stock returns and new house prices is detected. The result clearly suggests that the two series respond simultaneously to some fundamental changes, such as changes in interest rates.