Modeling of daily REIT returns and volatility
| Published date | 20 September 2013 |
| Date | 20 September 2013 |
| Pages | 589-601 |
| DOI | https://doi.org/10.1108/JPIF-06-2013-0035 |
| Author | Dimitrios Asteriou,Kyriaki Begiazi |
| Subject Matter | Property management & built environment |
PRACTICE BRIEFING
Modeling of daily REIT returns
and volatility
Dimitrios Asteriou and Kyriaki Begiazi
Social Sciences, Hellenic Open University, Patras, Greece
Abstract
Purpose – The purpose of this paper is to examine the US real estate investment trusts (REITs) for
the 2000-2012 period using GARCH models that include the day-of-the-week effect and the
stock-market index as explanatory variables. This technique documents the return and volatility of
equity, mortgage and hybrid REITs.
Design/methodology/approach – The study starts with a CAPM model and continues with
GARCH(1,1), TGARCH(1,1) and EGARCH(1,1) models for each of the REIT subcategories with and
without the days of the week as dummy variables.
Findings – The results show that the best-fitted model is EGARCH except the equity REIT
series without the dummy variables that is better described with the GARCH. The stock market
has a significant impact on REIT returns but no remarkable significance in respect of the
day-of-the-week effect.
Practical implications – The findings suggest that there is not a significant risk diversification
potential between REITs and common stocks. In the scope of the credit crisis which originated in the
real estate market it must be taken seriously into consideration that REITs, except of the equity
REITs, are more sensitive to bad news.
Originality/value – This paper uses daily returns for each of the three main REIT subcategories
opposed to the monthly that are commonly used. We point out the evidence of asymmetric responses,
suggesting the leverage effect and differential financial risk depending on the direction of price change
movements.
Keywords GARCH, Real estateinvestment trust, EGARCH, Day ofthe week effect, Real estate,
Investments
Paper type Research paper
1. Introduction
A real estate investment trust or REIT is a tax designation for a corporate entity
investing in real estate. REITs main classification is equity REITs which own
income-productive properties, mortgage REITs which invest in mortgages on
residential or commercial properties and hybrid REITs which participate in both
equity and mortgage investing. The rationale behind the examination of REITs is due
to their unique structure in comparison to mainstream equities.
REITs under US tax rules must have at least 75 percent of their total asset s invested
in real estate, derive a minimum 75 percent of their gross income from rents or
mortgage interest and pay dividends of at least 90 percent of their taxable income
according to US Securities and Exchange Commission. The National Association of
Real Estate Investment Trusts (NAREIT) maintained that significantly higher on
average than other equities; the industry’s dividend yields historically have pro duced a
steady stream of income through a variety of market conditions. Because of their
access to corporate-level debt and equity that typical real estate owners cannot access,
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
Journal of Property Investment &
Finance
Vol. 31 No. 6, 2013
pp. 589-601
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-06-2013-0035
Daily REIT
returns and
volatility
589
To continue reading
Request your trial