Impact of Volatility and Equity Market Uncertainty on Herd Behaviour: Evidence from UK REITs

Kola Akinsomi, Yener Coskun (), Rangan Gupta and Chi Keung Lau

ERES from European Real Estate Society (ERES)

Abstract: PurposeThis paper examines herding behaviour among investors and traders in UK-listed Real Estate Investment Trusts (REITs) within three market regimes (low, high and extreme volatility periods) from the period June 2004 to April 2016.Design/methodology/approachObservations of investors in 36 REITs that trade on the London Stock Exchange as at April 2016 were used to analyse herding behaviour among investors and traders of shares of UK REITs, employing a Markov regime-switching model.FindingsAlthough a static herding model rejects the existence of herding in REITs markets, estimates from the regime-switching model reveal substantial evidence of herding behaviour within the low volatility regime. Most interestingly, we observed a shift from anti-herding behaviour within the high volatility regime to herding behaviour within the low volatility regime, with this having been caused by the FTSE 100 Volatility Index (UK VIX). Originality/valueThe results have various implications for decisions regarding asset allocation, diversification and value management within UK REITs. Market participants and analysts may consider that collective movements and market sentiment/psychology are determinative factors of risk-return in UK REITs. In addition, general uncertainty in the equity market, proxied by the impact of the UK VIX, may also provide a signal for increasing herding-related risks among UK REITs.

Keywords: Herd behaviour; Markov-switching; Time-varying probabilities.; UK REITs (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2018-01-01
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Impact of Volatility and Equity Market Uncertainty on Herd Behavior: Evidence from UK REITs (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2018_52

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