Uncovering Volatility Dynamics in Daily REIT Returns

TL;DR

This paper investigates daily REIT volatility using a time-varying GARCH approach, revealing that market sentiment significantly influences volatility more than intra-sector linkages, contrasting with prior monthly studies.

Contribution

It introduces a dynamic GARCH model to analyze daily REIT volatility and uncovers the dominant role of market sentiment over intra-sector relationships.

Findings

Market sentiment has a stronger influence on daily REIT volatility.

Intra-sector linkages are less significant on a daily basis.

Results differ from previous monthly volatility studies.

Abstract

Using a time-varying approach, this paper examines the dynamics of volatility in the REIT sector. The results highlight the attractiveness and suitability of using GARCH based approaches in the modeling of daily REIT volatility. The paper examines the influencing factors on REIT volatility, documenting the return and volatility linkages between REIT sub-sectors and also examines the influence of other US equity series. The results contrast with previous studies of monthly REIT volatility. Linkages within the REIT sector and with related sectors such as value stocks are diminished, while the general influence of market sentiment, coming through the large cap indices is enhanced. This would indicate that on a daily basis general market sentiment plays a more fundamental role than more intuitive relationships within the capital markets.