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Time varying risk premia for real estate investment trusts: A GARCH-M model |
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| Institution: | 1. Department of Accounting and Finance, Donald Harrison College of Business, Southeast Missouri State University, Cape Girardeau, MO, 63701 USA;1. Department of Finance, Higher Institute of Business Administration of Sfax, Tunisia;2. Department of Finance, Faculty of Economics and Management of Mahdia, Tunisia;1. School of Hydropower and Information Engineering, Huazhong University of Science and Technology, Wuhan 430072, China;2. State Key Laboratory of Soil and Sustainable Agriculture, Institute of Soil Science, Chinese Academy of Sciences, Nanjing 210008, China;1. Old Dominion University, Strome College of Business, Norfolk, VA 23529, United States;2. Alfred University, One Saxon Drive, Alfred, NY 14802, United States |
| Abstract: | This study employs the generalized autoregressive conditionally heteroskedastic in the mean (GARCH-M) methodology to investigate the return generating process of real estate investment trusts (REIT). The trade-off between excess returns and the conditional variance was positive for both equity and mortgage REITs but it was significant only for the latter. Changes in interest rates and their conditional variance were found to be inversely related to REIT excess returns. The 1986 tax law had a negative impact on the excess returns to both REIT sectors but the coefficient was significant only for mortgage REITs. The GARCH-M specification was determined to be more appropriate for the mortgage REIT portfolio than for the portfolio of equity REITs. |
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