 Hedging downside risk for REITsJian Zhou The North American Journal of Economics and Finance, 2025, vol. 79, issue C Abstract: As an alternative investment class, REITs possess a unique ‘duality’ feature and have been experiencing strong downside movements recently. The paper aims to investigate a timely research subject on hedging downside risk for REITs. We consider a variety of downside risk measures and assess the hedging performance of minimum-downside-risk (MDR) strategies relative to the benchmark minimum-variance (MV) approach. Our study reveals two important findings that are distinctive from those reported in other markets: first, the MV approach leads to under-hedging compared with various MDR approaches. Second, a simpler historical simulation method generally outperforms the more complex Monte Carlo simulation method in estimating optimal hedge ratios. Our study also yields similar results as in other markets. We find that a decent amount of tail risk would still remain even after hedging whereas other types of down risk can be largely hedged away. Moreover, as the hedger becomes more concerned with tail risk, the hedging performance would deteriorate. Keywords: REIT index futures; Downside risk; Hedge ratio; Hedging effectiveness; Out-of-sample analysis (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:79:y:2025:i:c:s1062940825001032 DOI: 10.1016/j.najef.2025.102463 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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