The Liquidity Crisis, Investor Sentiment, and REIT Returns and Volatility

Posted: 5 Dec 2015 Last revised: 19 Oct 2016

See all articles by Daniel Huerta

Daniel Huerta

College of Charleston - Department of Economics & Finance

Peter Egly

Wells Fargo Bank

Diego Escobari

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance; Texas A&M University - Department of Economics

Date Written: November 24, 2015

Abstract

The real estate investment trust (REIT) industry experienced a liquidity crisis resulting from reduced access to credit commitments as banks were restoring their balance sheets during the 2007-2009 financial crisis. Employing generalized autoregressive conditional heteroscedasticity (GARCH) models we examine the impact of the liquidity crisis and investor sentiment on REIT returns and volatility over the sample period from December 2001 to February 2013. We find that the liquidity crisis negatively impacts REIT returns and helps explain increases in volatility; this finding is robust to multiple specifications. We show that investor sentiment is a significant factor in explaining the REIT return generating process with institutional sentiment playing a dominating role over individual sentiment; furthermore, institutional sentiment was the only relevant sentiment variable during liquidity crisis.

Keywords: Investor Sentiment, Liquidity Crisis, REIT returns, REIT volatility, GARCH-M

JEL Classification: G11, G14, G23

Suggested Citation

Huerta, Daniel and Egly, Peter and Escobari, Diego, The Liquidity Crisis, Investor Sentiment, and REIT Returns and Volatility (November 24, 2015). Journal of Real Estate Portfolio Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2698866

Daniel Huerta (Contact Author)

College of Charleston - Department of Economics & Finance ( email )

5 Liberty Street
Charleston, SC 29401
United States

Peter Egly

Wells Fargo Bank ( email )

United States

Diego Escobari

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance ( email )

1201 W. University Drive
Edinburg, TX 78539-2999
United States

HOME PAGE: http://faculty.utrgv.edu/diego.escobari

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

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