Changes in sentiment on REIT industry excess returns and volatility

Daniel Huerta-Sanchez () and Diego Escobari
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Daniel Huerta-Sanchez: College of Charleston

Financial Markets and Portfolio Management, 2018, vol. 32, issue 3, No 1, 239-274

Abstract: Abstract REIT characteristics pose unique risks and benefits to investors who seek liquid diversification and hedging vehicles to complement their portfolios. This paper tests for the asymmetric effect of individual and institutional investor sentiment on REIT industry returns and conditional volatility. We simultaneously model the impact of two markedly different groups of investors on the return generating process of the REIT industry. Our findings suggest that noise trading imposes significant systemic risk on the realization of REIT industry returns. Interestingly, corrections in institutional investor expectations have a larger effect on REIT industry returns and volatility than changes in individual investor expectations. More specifically, bearish shifts in institutional investor expectations of future market conditions have a significantly larger impact on returns and volatility than bullish shifts. Results align with the overreaction to negative information and loss aversion hypotheses.

Keywords: REITs; Investor sentiment; Noise traders; Volatility; GARCH-M (search for similar items in EconPapers)
JEL-codes: G11 G4 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11408-018-0312-9

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