REIT Stock Market Volatility and Expected Returns

Real Estate Economics, Forthcoming

Posted: 8 Jan 2015

See all articles by Richard Chung

Richard Chung

The Hong Kong Polytechnic University

Scott Fung

California State University, East Bay

James D. Shilling

DePaul University; National Bureau of Economic Research (NBER)

Tammie Simmons-Mosley

California State University, East Bay - Department of Management

Date Written: November 7, 2014

Abstract

We study the relation between REIT stock volatility and future returns, focusing particularly on the financial crisis period of 2007-2009. There is ongoing debate about whether stock volatility can forecast future returns. Our findings suggest that REIT implied volatility is negatively related to contemporaneous stock returns; there is a significant positive relationship between REIT implied volatility and future stock volatility; and there is a significant negative relation between REIT implied volatility and future stock returns. Lastly, we develop trading rules based on REIT implied volatility to test whether these relationships are exploitable. The result suggests a potentially profitable trading strategy.

Keywords: implied volatility, REIT stock returns, financial distress, financial crisis

Suggested Citation

Chung, Richard and Fung, Scott Siu Kuen and Shilling, James D. and Simmons-Mosley, Tammie, REIT Stock Market Volatility and Expected Returns (November 7, 2014). Real Estate Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2545978

Richard Chung

The Hong Kong Polytechnic University ( email )

School of Accounting & Finance
Hung Hom, Kowloon
Hong Kong

Scott Siu Kuen Fung

California State University, East Bay ( email )

25800 Carlos Bee Boulevard
Hayward, CA 94542
United States

James D. Shilling

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tammie Simmons-Mosley (Contact Author)

California State University, East Bay - Department of Management ( email )

25800 Carlos Bee Boulevard
Hayward, CA 94542
United States

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