Pricing of Volatility Risk in REITs

33 Pages Posted: 14 Oct 2011 Last revised: 15 May 2013

See all articles by Jared DeLisle

Jared DeLisle

Utah State University

S. McKay Price

Lehigh University - Perella Department of Finance

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law

Multiple version iconThere are 2 versions of this paper

Date Written: April 30, 2012

Abstract

We examine the pricing of volatility risk in the cross-section of equity Real Estate Investment Trust (REIT) stock returns over the 1996 – 2010 period. We consider both aggregate (systematic) volatility and firm-specific (idiosyncratic) volatility. In contrast to the negative and significant price of systematic volatility risk for Non-REIT equities, we find that systematic volatility is not priced in REIT returns. Idiosyncratic volatility, estimated using the Fama and French (1993) three factor model, is negatively priced in the cross-section and is largely independent of Non-REIT idiosyncratic volatility. Within the total volatility risk profile, idiosyncratic volatility dominates aggregate volatility in REIT pricing.

Keywords: Risk, Idiosyncratic Volatility, Implied Systematic Volatility, Market Volatility Factor, Asset Pricing, REITs

JEL Classification: G00, G10, G11, G12, G13, D84

Suggested Citation

DeLisle, Jared and Price, S. McKay and Sirmans, C. F., Pricing of Volatility Risk in REITs (April 30, 2012). Journal of Real Estate Research, 2013, Vol. 35, No. 2, pp. 223-248.. Available at SSRN: https://ssrn.com/abstract=1943752 or http://dx.doi.org/10.2139/ssrn.1943752

Jared DeLisle

Utah State University ( email )

Logan, UT 84322
United States
435-797-0885 (Phone)

S. McKay Price (Contact Author)

Lehigh University - Perella Department of Finance ( email )

621 Taylor Street
Bethlehem, PA 18015
United States
610-758-4787 (Phone)

HOME PAGE: http://www.mckayprice.com

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law ( email )

Tallahasse, FL 32306
United States
850 644-4076 (Phone)

HOME PAGE: http://www.cob.fsu.edu/rmi

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