Financial Markets and Portfolio Management

, Volume 32, Issue 3, pp 239–274 | Cite as

Changes in sentiment on REIT industry excess returns and volatility

  • Daniel Huerta-SanchezEmail author
  • Diego Escobari


REIT characteristics pose unique risks and benefits to investors who seek liquid diversification and hedging vehicles to complement their portfolios. This paper tests for the asymmetric effect of individual and institutional investor sentiment on REIT industry returns and conditional volatility. We simultaneously model the impact of two markedly different groups of investors on the return generating process of the REIT industry. Our findings suggest that noise trading imposes significant systemic risk on the realization of REIT industry returns. Interestingly, corrections in institutional investor expectations have a larger effect on REIT industry returns and volatility than changes in individual investor expectations. More specifically, bearish shifts in institutional investor expectations of future market conditions have a significantly larger impact on returns and volatility than bullish shifts. Results align with the overreaction to negative information and loss aversion hypotheses.


REITs Investor sentiment Noise traders Volatility GARCH-M 

JEL Classification

G4 G11 



The authors thank the editor and two anonymous referees for their insightful comments and guidance.


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Copyright information

© Swiss Society for Financial Market Research 2018

Authors and Affiliations

  1. 1.Department of Finance, School of BusinessCollege of CharlestonCharlestonUSA
  2. 2.Department Economics and FinanceThe University of Texas Rio Grande ValleyEdinburgUSA

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