Conditional Volatility of Equity Real Estate Investment Trust Returns: A Pre- and Post-1993 Comparison |
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Authors: | Benjamas Jirasakuldech Robert D Campbell Riza Emekter |
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Institution: | (1) Eberhardt School of Business, University of the Pacific, 3601 Pacific Avenue, Stockton, CA 95211, USA;(2) Department of Finance, Hofstra University, 134 Hofstra University, Hempstead, NY 11549-1340, USA;(3) Department of Finance/Economics, Robert Morris University, 6001 University Boulevard, Moon Township, PA 15108, USA |
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Abstract: | We examine the dynamic behavior of Equity Real Estate Investment Trust (EREIT) volatility in a GARCH context 1972–2006 using
monthly EREIT returns, and comparing volatility performance for “early” Equity REITs 1972–1992 with that of “modern” EREITs
1993–2006. Consistent with findings for conventional firms, we find that EREIT conditional volatility is time-varying, persistent,
and predictable. There is a positive relationship between expected return and expected risk in EREIT stocks pre-1993, but
the relationship disappears after 1993. We find no evidence that negative shocks affect EREIT volatility differently from
positive ones in either time period. Different from reported results for conventional firms, we find that changes in the conditional
volatility of fundamental macroeconomic variables have strong explanatory value for future changes in EREIT volatility. Finally,
comparing EREIT volatility performance with volatility in the Russell 2000 Index, a proxy for small stocks, we find that EREIT
volatility behaves differently from that of small stocks in many respects, indicating that risks in the small stock index
cannot effectively proxy for risks in the EREIT market.
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Keywords: | Real estate Real estate investment trusts REITs GARCH Price volatility Conditional volatility Volatility persistence Macroeconomic volatility |
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