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The Liquidity Crisis, Investor Sentiment, and REIT Returns and Volatility

Author

Listed:
  • Huerta, Daniel
  • Egly, Peter V.
  • Escobari, Diego
Abstract
The real estate investment trust (REIT) industry experienced a liquidity crisis resulting from reduced access to credit commitments as banks were restoring their balance sheets during the 2007-2009 financial crisis. Employing generalized autoregressive conditional heteroscedasticity (GARCH) models we examine the impact of the liquidity crisis and investor sentiment on REIT returns and volatility over the sample period from December 2001 to February 2013. We find that the liquidity crisis negatively impacts REIT returns and helps explain increases in volatility; this finding is robust to multiple specifications. We show that investor sentiment is a significant factor in explaining the REIT return generating process with institutional sentiment playing a dominating role over individual sentiment; furthermore, institutional sentiment was the only relevant sentiment variable during liquidity crisis.

Suggested Citation

  • Huerta, Daniel & Egly, Peter V. & Escobari, Diego, 2015. "The Liquidity Crisis, Investor Sentiment, and REIT Returns and Volatility," MPRA Paper 68155, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:68155
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Investor Sentiment; Liquidity Crisis; REIT returns; REIT volatility; GARCH-M;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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