Abstract
<title>Abstract</title> <p>In the U.S. real estate investment trust (REIT) industry, large REITs dominate despite intense competition. This study examines whether economic uncertainty, proxied by the Economic Policy Uncertainty (EPU) index, is associated with industry concentration, measured by the Herfindahl-Hirschman Index (HHI). We first find that changes in EPU predict changes in HHI. Further conditional lead-lag regression analysis shows that positive EPU shocks, reflecting heightened economic uncertainty, lead to greater concentration in the REIT industry in subsequent years and vice versa. In addition, we find that EPU significantly predicts the performance of equity REITs (EREITs) but not mortgage REITs (MREITs). Finally, we provide evidence that EPU predicts REIT industry concentration through its effect on merger and acquisition activity. Given the negative relationship between HHI and REIT returns documented by Zhang & Hansz (2022), our findings suggest that EPU may adversely affect REITs’ long-term performance by increasing industry concentration, thereby identifying a potential channel through which economic policy uncertainty influences REIT performance over the long run.</p>