Uncovering Volatility Dynamics in Daily REIT Returns

Cotter, John and Stevenson, Simon (2004): Uncovering Volatility Dynamics in Daily REIT Returns. Published in: Journal of Real Estate Portfolio Management , Vol. 13, : pp. 119-128.

Abstract

Using a time-varying approach, this paper examines the dynamics of volatility in the REIT sector. The results highlight the attractiveness and suitability of using GARCH based approaches in the modeling of daily REIT volatility. The paper examines the influencing factors on REIT volatility, documenting the return and volatility linkages between REIT sub-sectors and also examines the influence of other US equity series. The results contrast with previous studies of monthly REIT volatility. Linkages within the REIT sector and with related sectors such as value stocks are diminished, while the general influence of market sentiment, coming through the large cap indices is enhanced. This would indicate that on a daily basis general market sentiment plays a more fundamental role than more intuitive relationships within the capital markets.

• Item Type: MPRA Paper
• Institution: University College Dublin
• Language: English
• Subjects: G - Financial Economics > G1 - General Financial Markets > G10 - General

References

Black, F. (1976) Studies in Stock Price Volatility Changes, Proceedings of the 1976 Business Meeting of the Business and Economics Statistics Section, American Statistical Association, 177-181. Bollerslev, T. (1986). Generalized Autoregressive Conditional Heteroscedasticity, Journal of Econometrics, 31, 307-328. Bollserslev, T. & Woodridge, J. (1992). Quasi-Maximum Likelihood Estimation and Inference in Models with Time Varying Covariances, Econometric Review, 11, 143-172. Chiang, K. & Lee, M. (2002). REITs in the Decentralised Investment Industry, Journal of Property Investment & Finance, 20, 496-512. Cotter, J. & Stevenson, S. (2006). Multivariate Modelling of Daily REIT Volatility, Journal of Real Estate Finance & Economics, forthcoming. Devaney, M. (2001) Time Varying Risk Premia for Real Estate Investment Trusts: A GARCH-M Model, Quarterly Review of Economics & Finance, 41, 335-346. Engle, R.F. (1982). Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of UK Inflation, Econometrica, 50, 987-1008. Engle, R.F. & Ng, V.K. (1993). Measuring and Testing the Impact of News on Volatility, Journal of Finance, 48, 1749-1778. Glascock, J., Lu, C. & So, R. (2000). Further Evidence on the Integration of REIT, Bond and Stock Returns, Journal of Real Estate Finance & Economics, 20, 177-194. Glosten, L., Jagannathan, R. & Runkle, D. (1993). On the Relation Between the Expected Value and the Volatility of the Nominal Excess Return on Stocks, Journal of Finance, 48, 1779-1801. He, L. (1998). Cointegration and Price Discovery Between Equity and Mortgage REITs, Journal of Real Estate Research, 16, 327-338. Lee, M.L. & Chiang, K. (2004). Substitutability Between Equity REITs and Mortgage REITs, Journal of Real Estate Research, 26, 96-113. Li, Y. & Wang, K. (1995). The Predictability of REIT Returns and Market Segmentation, Journal of Real Estate Research, 10, 471-482. Ling, D. & Naranjo, A. (1999). The Integration of Commercial Real Estate Markets and Stock Markets, Real Estate Economics, 27, 483-515. Ling, D. & Naranjo, A. (2003). The Dynamics of REIT Capital Flows and Returns, Real Estate Economics, 31, 405-434. Ling, D. & Naranjo, A. (2004). Dedicated and Non-Dedicated Mutual Fund Flows and REIT Performance, Paper presented at the American Real Estate & Urban Economics Association Annual Conference (ASSA Meetings). Ling, D., Naranjo, A. & Ryngaert, M. (2000). The Predictability of Equity Returns: Time Variation and Economic Significance, Journal of Real Estate Finance & Economics, 20, 117-136. Liu, C.H., Hartzell, D.J., Greig, W. & Grissom, T. (1990). The Integration of the Real Estate Market and the Stock Market: Some Preliminary Evidence, Journal of Real Estate Finance & Economics, 3, 261-282. Mei, J. & Lee, A. (1994). Is there a Real Estate Risk Premium ?, Journal of Real Estate Finance & Economics, 9, 113-126. Najand, M. & Lin, C. (2004). Time Varying Risk Premium for Equity REITs: Evidence from Daily Data, Working Paper, Old Dominion University. Okunev, J. & Wilson, P. (1997). Using Nonlinear Tests to Examine Integration Between Real Estate and Stock Markets, Real Estate Economics, 25, 487-504. Peterson, J. & Hsieh, C. (1997). Do Common Risk Factors in the Returns on Stocks and Bonds Explain Returns on REITs ?, Real Estate Economics, 25, 321-345. Phillips, P. & Ouliaris, S. (1990). Asymptotic Properties of Residual Based Tests for Cointegration, Econometrica, 58, 165-193. Phylaktis, K. (1999). Capital Market Integration in the Pacific Basin Region: An Impulse Response Analysis, Journal of International Money and Finance, 18, 267-287. Seck, D. (1996). The Substitutability of Real Estate Assets, Real Estate Economics, 24, 75-95. Stevenson, S. (2002). An Examination of Volatility Spillovers in REIT Returns, Journal of Real Estate Portfolio Management, 8, 229-238. Wilson, P. & Okunev, J. (1996). Evidence of Segmentation in Domestic and International Property Markets, Journal of Property Finance, 7, 78-97. Winniford, M. (2003). Real Estate Investment Trusts and Seasonal Volatility: A Periodic GARCH Model, Working Paper, Duke University.