Open AccessOn the hedging benefits of REITs: The role of risk aversion and market states
Author(s) -
Rıza Demirer,
Aslı Yüksel,
Yüksel Aydın
Publication year - 2021
Publication title -
economics and business letters
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.197
H-Index - 4
ISSN - 2254-4380
DOI - 10.17811/ebl.10.2.2021.126-132
Subject(s) - real estate investment trust , risk aversion (psychology) , stock (firearms) , economics , financial economics , stock market , econometrics , actuarial science , business , expected utility hypothesis , real estate , finance , mechanical engineering , paleontology , horse , engineering , biology
We propose a dynamic, forward-looking hedging strategy to manage stock market risks via positions in REITs, conditional on the level of risk aversion. Our findings show that REITs do not only offer significant risk reduction for passive portfolios, but also offer much improved risk-adjusted returns with the greatest benefits observed for Australia, Canada and the U.S. Overall, our findings suggest that time-varying risk aversion can be utilized to (i) establish effective hedges against stock market risks via positions in REITS, and (ii) improve the risk-return profile of passive portfolios.