Volatility Persistence in Equity REIT Market

21 Pages Posted: 31 Dec 2007 Last revised: 31 Jan 2013

See all articles by Tien Foo Sing

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

I. Chun Tsai

Southern Taiwan University of Science and Technology - Department of Finance

Ming-Chi Chen

National Sun Yat-sen University - Department of Finance

Date Written: March 7, 2012

Abstract

Extreme shocks if occur will have significant and permanent impact on the risk premiums of the stock markets. Modeling these events in a conditional variance framework assuming that the stock market will mean-revert in a short time could produce spurious results. Using the Markov-switching autoregressive conditional heteroskedasticity (MS-GARCH) model to filter out the high volatility states from the low and medium volatility states, we found that the volatility persistence (“large news”) increases the returns of the equity real estate investment trust (EREIT). However, when the volatility persistence is interacted with negative shocks, it cause the EREIT returns to decline. The negative volatility persistence effects fit the story of inter-temporal asset substitution, which explain why risk-averse REIT investors substitute risky REIT assets by risk-less assets in periods of prolong negative shocks.

Keywords: Asymmetric Beta, Market Condition, SWARCH, Market Volatility

Suggested Citation

Sing, Tien Foo and Tsai, I. Chun and Chen, Ming-Chi, Volatility Persistence in Equity REIT Market (March 7, 2012). Available at SSRN: https://ssrn.com/abstract=1079591 or http://dx.doi.org/10.2139/ssrn.1079591

Tien Foo Sing (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

I. Chun Tsai

Southern Taiwan University of Science and Technology - Department of Finance ( email )

Nan-Tia St.
Tainan Taiwain 710, Tainan
China

Ming-Chi Chen

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

HOME PAGE: http://cm.nsysu.edu.tw/~mcchen/index.html

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