Markov Switching Dynamics in REIT Returns: Univariate and Multivariate Evidence on Forecasting Performance

64 Pages Posted: 20 May 2014

See all articles by Brad Case

Brad Case

Fannie Mae

Massimo Guidolin

Bocconi University - Department of Finance

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York

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Date Written: Summer 2014

Abstract

We document the presence of Markov switching regimes in expected returns, variances and the implied reward‐to‐risk ratio of real estate investment trust (REIT) returns and compare them to properties of stocks and bonds. Our evidence suggests that regime switching techniques are more successful over the period 1972–2008 than other time‐series models are. When the analysis is extended to a multivariate setting in which REIT, stock and bond returns are modeled jointly, we find that the data call for the specification of four separate regimes. These result from the absence of synchronicity among the regimes that characterize univariate REIT, stock and bond returns.

Suggested Citation

Case, Bradford and Guidolin, Massimo and Yildirim, Yildiray, Markov Switching Dynamics in REIT Returns: Univariate and Multivariate Evidence on Forecasting Performance (Summer 2014). Real Estate Economics, Vol. 42, Issue 2, pp. 279-342, 2014. Available at SSRN: https://ssrn.com/abstract=2438998 or http://dx.doi.org/10.1111/1540-6229.12025

Bradford Case (Contact Author)

Fannie Mae ( email )

3900 Wisconsin Avenue, NW
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United States
202-752-4221 (Phone)

Massimo Guidolin

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

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