Abstract
We examine the pricing of volatility risk in the cross-section of equity Real Estate Investment Trust (REIT) stock returns over the 1996 – 2010 period. We consider both aggregate (systematic) volatility and firm-specific (idiosyncratic) volatility. In contrast to the negative and significant price of systematic volatility risk for Non-REIT equities, we find that systematic volatility is not priced in REIT returns. Idiosyncratic volatility, estimated using the Fama and French (1993) three factor model, is negatively priced in the cross-section and is largely independent of Non-REIT idiosyncratic volatility. Within the total volatility risk profile, idiosyncratic volatility dominates aggregate volatility in REIT pricing.
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