Multivariate Modeling of Daily REIT Volatility

TL;DR

This study models daily REIT volatility using multivariate GARCH to reveal dynamic return and volatility linkages, highlighting differences from monthly data and the influence of broader market factors.

Contribution

It introduces a multivariate VAR-GARCH approach to analyze daily REIT volatility and inter-sector linkages, contrasting with prior monthly-based studies.

Findings

Daily data shows weaker REIT sector linkages than monthly data.

Broader market influences are more prominent in daily volatility.

Differences in results highlight importance of data frequency in volatility modeling.

Abstract

This paper examines volatility in REITs using a multivariate GARCH based model. The Multivariate VAR-GARCH technique documents the return and volatility linkages between REIT sub-sectors and also examines the influence of other US equity series. The motivation is for investors to incorporate time-varyng volatility and correlations in their portfolio selection. The results illustrate the differences in results when higher frequency daily data is tested in comparison to the monthly data that has been commonly used in the existing literature. The linkages both within the REIT sector and between REITs and related sectors such as value stocks are weaker than commonly found in monthly studies. The broad market would appear to be more influential in the daily case.