Flight-to-Diversification: The Effect of Diversification for REITs At Times of High Market Volatility

Heidi Falkenbach and Islam Ibrahim

ERES from European Real Estate Society (ERES)

Abstract: At heightened market volatility, investors migrate to safer investments prioritizing risk avoidance over gaining higher returns. Hence the value of safer, less volatile investment appreciates. As diversification diminishes volatility, we investigate whether diversified REITs is considered a safer investment at high market volatility. We find that the effect of diversification on the value and public debt cost of REITs varies with market volatility. At low level of market volatility geographical diversification has a negative net effect on the REIT value. However, as the market volatility increases, this negative impact diminishes. Similarly, we find that at low level of market volatility, geographical diversification has a yield-increasing effect on the debt issues of REITs. But, also, as market volatility increases the yield-increasing effect diminishes. These findings indicate that the value of diversification increases with market volatility.

Keywords: Diversification; firm value; market volatility; REIT (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2024-01-01
New Economics Papers: this item is included in nep-inv and nep-rmg
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