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REIT Stock Market Volatility and Expected Returns
Author(s) -
Chung Richard,
Fung Scott,
Shilling James D.,
Simmons–Mosley Tammie X.
Publication year - 2016
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 - 10.1111/1540-6229.12128
Subject(s) - volatility (finance) , real estate investment trust , economics , stock (firearms) , volatility swap , financial economics , volatility smile , implied volatility , volatility risk premium , stock market , econometrics , monetary economics , real estate , finance , mechanical engineering , paleontology , horse , engineering , biology
We study the relation between REIT stock volatility and future returns, focusing particularly on the financial crisis period of 2007–2009. There is ongoing debate about whether stock volatility can forecast future returns. Our findings suggest that REIT‐implied volatility is negatively related to contemporaneous stock returns; there is a significant positive relationship between REIT implied volatility and future stock volatility; and there is a significant negative relation between REIT implied volatility and future stock returns. Lastly, we develop trading rules based on REIT implied volatility to test whether these relationships are exploitable. The result suggests a potentially profitable trading strategy.