Examining the stochastic behavior of REIT returns: Evidence from the regime switching approach

Shyh-Wei Chen and Chung-Hua Shen

Economic Modelling, 2012, vol. 29, issue 2, 291-298

Abstract: In this paper the stochastic behavior of the returns on real estate investment trusts (REITs) is examined by using the unobserved component Markov switching (UC-MS) model. This approach endogenously permits the volatility to switch as the date and regime change and allows us to decompose the permanent and transitory components in REIT returns at monthly frequencies. The empirical evidence clearly shows that, for all of the REIT returns, the overall variance of the transitory component is significantly smaller than the corresponding variance for the permanent component. The durations of the high-variance regimes for both the fundamental and transitory components are short-lived and revert to normal levels quickly.

Keywords: REITs; Markov switching model; Permanent component; Transitory component (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:2:p:291-298

DOI: 10.1016/j.econmod.2011.10.006

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