Modeling Long Memory in REITs

TL;DR

This paper investigates long memory in REITs' volatility, revealing persistence in volatility measures and their association with trading volume, with differences noted compared to broader equity markets.

Contribution

It provides empirical evidence of long memory in REIT volatility and compares it with non-REIT equity indices, highlighting unique market dynamics.

Findings

REIT volatility exhibits long memory and persistence.

Trading volume is strongly linked to long memory.

Differences exist between REITs and broader equity markets.

Abstract

One stylized feature of financial volatility impacting the modeling process is long memory. This paper examines long memory for alternative risk measures, observed absolute and squared returns for Daily REITs and compares the findings for a non- REIT equity index. The paper utilizes a variety of tests for long memory finding evidence that REIT volatility does display persistence, in contrast to the actual return series. Trading volume is found to be strongly associated with long memory. The results do however suggest differences in the findings with regard to REITs in comparison to the broader equity sector which may be due to relatively thin trading during the sample period.