Pricing of Volatility Risk in REITs
26 Pages Posted: 18 Jun 2013
Date Written: June 17, 2013
We examine the pricing of volatility risk in the cross-section of equity real estate investment trust (REIT) stock returns over the 1996 to 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.
Keywords: volatility, risk, REIT return
Suggested Citation: Suggested Citation