Price and volatility persistence of the US REITs market

Oluwasegun B Adekoya,Johnson A Oliyide,Gabriel O Oduyemi

doi:10.1186/s43093-021-00102-8

Oluwasegun B Adekoya, Johnson A Oliyide + Show 1 more

Open Access

https://doi.org/10.1186/s43093-021-00102-8

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Abstract

This study revisits the issue of REITs market efficiency for the US having discovered two notable gaps. Noting the complexities, structural changes and nonlinearities in modern financial markets, we employ the fractional integration technique which performs better than other commonly used techniques in the presence of structural breaks, fractional integration, trend-stationarity and regime switching in time series. Summarizing our results, we find that the US REITs market is efficient in the overall sample. However, when the data are splitted, market efficiency only occurs in the pre-crisis period, but becomes less so during the crisis and post-crisis periods. In addition, evidence of mean reverting long-memory behavior is established for REITs volatility, although mean reversion is slower during and after the crisis. These results are robust to different data measurement and have crucial policy implications for potential investors and relevant policy makers.

Highlights

Real Estate Investment Trusts, commonly shortened as Real estate investment trust (REIT), is one of the fastest growing components of portfolio construction in many developed and emerging economies of the world in recent years
On the other hand, when autocorrelation is put into consideration, no deterministic terms are required for the REITs price index, while the REITs total market index only requires intercept
This paper is mainly geared towards the examination of the degree of persistence of the REITs series, and by implication the efficiency of the REITs market, of the United States (US) using the fractional integration long-memory technique

Summary

Introduction

Real Estate Investment Trusts, commonly shortened as REITs, is one of the fastest growing components of portfolio construction in many developed and emerging economies of the world in recent years. Liu et al [28] note that legislation and issuance of REITs have been implemented by not less than 37 countries as at October, 2008. The reason for this wide and increasing acceptance of REITs in recent times is likely to be the high level of security guaranteed on it. Lee and Stenvenson (2005) point out that, to a reasonable degree, REITs stands between the fixed income sector and equities by

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Conclusion