Uncertainty Measures and Sector-Specific REITs in a Regime-Switching Environment

Demiralay, Sercan; Kılınçarslan, Erhan

doi:10.1007/s11146-022-09898-w

Cited by 13 publications

(13 citation statements)

References 144 publications

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“…Hotel properties are relatively a new sector in the Japanese REITs. Despite the flexibility for hotel operators to adjust their room rates, hotels are susceptible to economic condition and political stability (Demiralay and Kilincarslan, 2022; Reddy and Cho, 2018). These two conditions may affect the influx of tourist arrivals in the Japanese market.…”

Section: Resultsmentioning

confidence: 99%

“…Thus, negating these variables may lead to omitted variable bias. The literature depicts that macroeconomic variables may not contain explanatory power to predict the return of REITs, either in the USA or in the Japanese market (Demiralay and Kilincarslan, 2022; Fang et al ., 2016). Another possibility to include the variables is by using the time-varying Markov switching model (Bianchi and Guidolin, 2014), but it is beyond the scope of this study.…”

Section: Notesmentioning

confidence: 99%

“…In what follows, there is master lease agreement between the two parties, whereby hotel REITs have access to minimum fixed income and variable income from hotel revenues, such as hotel room rates and food & beverages (F&B) activities. Hotel REITs are flexible to adjust their room rates on daily basis (Demiralay and Kilincarslan, 2022; Piao et al ., 2022).…”

Section: Background Of Japanese Reitsmentioning

confidence: 99%

“…While all property sector REITs are bound by a long-run cointegration relation, the exception holds for residential REITs. Demiralay and Kilincarslan (2022) examined the uncertainty of property sector REITs in the USA market and revealed that each property sector behaved differently to various types of uncertainty measure. For example, office REITs were sensitive to implied volatility in Standard & Poor (S&P) 500 index.…”

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The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

Razak

2023

JPIF

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PurposeThis study examined the dynamic role of the Japanese property sector, particularly the real estate investment trusts (REITs), in mixed-asset portfolios of stocks and bonds, as well as office, retail, hotel and residential REITs.Design/methodology/approachDaily data were retrieved from 01 January 2008 to 31 December 2019. The sample time frame consisted of in-sample and out-of-sample periods. The dynamic conditional correlation-generalised autoregressive conditional heteroskedastic (DCC-GJRGARCH) model was deployed to obtain the forecast estimates of time-varying volatility of REITs and correlations with other assets. The estimates were employed to construct out-of-sample portfolios based on the three assets for daily investment. The five sets of portfolios with each individual property sector REITs, as well as a portfolio of stocks and bonds that served as a benchmark, were produced. The average utility for each set of portfolios was estimated and compared with the average utility of the benchmark portfolio. The average transaction cost (TC) for portfolio rebalancing was calculated as well.FindingsThe forecast of volatility estimates for each property sector revealed that each asset displayed a similar pattern with the differences in the volatility magnitude. Notably, hotel and retail REITs were more volatile than other property sector REITs. The property sector REITs exhibited a positive correlation with stocks but negatively linked with bonds. The results unveiled the diversification benefits of incorporating property sector REITs. The portfolio with property sector REITs had higher risk-adjusted returns and utility, compared to portfolio consisting of stocks and bonds. The benefits outweighed the TC for portfolio rebalancing.Practical implicationsThis study highlights the importance of quantifying the conditional time-varying volatility and correlations of the property sector REITs with other asset returns, especially for investment decision, to select and include property sector REITs in mixed-asset portfolios. For fund managers seeking liquid assets in daily investment, this analysis suggests the inclusion of hotel and retail REITs to enhance REITs' portfolio performance.Originality/valueThis study is the first to investigate the dynamic characteristics of the volatility and correlation of each property sector REITs with other financial assets by employing the conditional framework that accounted for short- and long-run persistency in economic shocks. The reported outcomes shed light on the differences in the underlying properties that contribute to the variances in dynamic volatility of each sector REITs, as well as REITs' correlations with stocks and bonds. This application enables the authors to transmit the dynamics of variance-covariance matrix amongst each property sector REITs, stocks and bonds into asset allocation problem on a daily basis.

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Section: Resultsmentioning

confidence: 99%

Section: Notesmentioning

confidence: 99%

Section: Background Of Japanese Reitsmentioning

confidence: 99%

mentioning

confidence: 99%

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The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

Razak

2023

JPIF

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“…We further contribute to the burgeoning literature on uncertainty by studying the pricing implications on REITs. For instance, Demiralay and Kilincarslan (2022) study how REITs respond to established uncertainty proxies, such as implied stock market volatility, tail risk, and economic policy uncertainty (EPU). Jurado et al (2015) propose a novel econometric framework for measuring uncertainty, which is shown to be systematically priced in the stock as well as corporate bond market (Bali et al, 2017(Bali et al, , 2021.…”

Section: Introductionmentioning

confidence: 99%

Uncertainty premia in REIT returns

Lotz¹,

Ruf

2023

Real Estate Economics

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We provide a systematic study of how financial and real estate uncertainty affect the aggregate return performance of the U.S. REIT market from 1994 to 2017. A temporal causality analysis reveals a negative uncertainty impact on REIT returns. The asset pricing analysis confirms the predictive relation and suggests that REITs are statistically significantly exposed to changes in market‐wide uncertainty, for which investors require a return compensation. We also identify economic state variables to explain time‐varying uncertainty exposures as well as periodic hedging characteristics of REITs. Finally, we find evidence that the source of uncertainty matters for compensating expected REIT returns.

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Inter-regional dependence of J-REIT stock prices: A heteroscedasticity-robust time series approach

Motegi

Iitsuka

2023

The North American Journal of Economics and Finance

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Uncertainty Measures and Sector-Specific REITs in a Regime-Switching Environment

Cited by 13 publications

References 144 publications

The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

Uncertainty premia in REIT returns

Inter-regional dependence of J-REIT stock prices: A heteroscedasticity-robust time series approach

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