Uncertainty Measures and Sector-Specific REITs in a Regime-Switching Environment

Sercan Demiralay () and Erhan Kilincarslan ()
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Sercan Demiralay: Nottingham Trent University
Erhan Kilincarslan: University of Huddersfield

The Journal of Real Estate Finance and Economics, 2024, vol. 69, issue 3, No 6, 545-584

Abstract: Abstract In this paper, we attempt to explore the effects of various uncertainty measures – namely, implied volatility (VIX), tail risk (SKEW), economic policy uncertainty (EPU) and partisan conflict (PCI) indices-, on U.S. REITs returns at sector level, using the non-linear Markov regime-switching model. Our empirical results reveal that uncertainty measures have regime-dependent impacts and do not affect the return dynamics of REIT sectors in a uniform way. Office and hotel & lodging REITs exhibit the strongest sensitivity to VIX and EPU, respectively, during bearish market periods. While residential REITs are the most resilient to uncertainties, healthcare REIT returns are negatively affected from all the uncertainty factors only in the low variance regime. Hence, our findings show evidence of asymmetric, non-linear and sector-dependent linkages between REITs and uncertainties. These results provide valuable insights and important implications for REIT investors.

Keywords: REITs; Uncertainty; Markov regime-switching; Implied volatility (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11146-022-09898-w

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