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Markov Switching Dynamics in REIT Returns: Univariate and Multivariate Evidence on Forecasting Performance
Author(s) -
Case Brad,
Guidolin Massimo,
Yildirim Yildiray
Publication year - 2013
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12025
Subject(s) - real estate investment trust , univariate , econometrics , economics , multivariate statistics , markov chain , stock (firearms) , bond , financial economics , real estate , synchronicity , statistics , mathematics , finance , geography , philosophy , archaeology , epistemology
We document the presence of Markov switching regimes in expected returns, variances and the implied reward‐to‐risk ratio of real estate investment trust (REIT) returns and compare them to properties of stocks and bonds. Our evidence suggests that regime switching techniques are more successful over the period 1972–2008 than other time‐series models are. When the analysis is extended to a multivariate setting in which REIT, stock and bond returns are modeled jointly, we find that the data call for the specification of four separate regimes. These result from the absence of synchronicity among the regimes that characterize univariate REIT, stock and bond returns.