Episodic Volatility Dynamics of U.S. REITs and Conventional Stocks: Evidence from Crisis and Tranquil Periods

Abstract

This study examines the episodic volatility dynamics of U.S. real estate investment trusts (REITs) relative to conventional equities across turbulent and tranquil market conditions. Using daily returns from the Wilshire U.S. REIT Index and S&P 500 from 2000 to 2003, the analysis separates the Global Financial Crisis and COVID-19 pandemic from the remaining lower stress periods. Standard GARCH, EGARCH, and GJR-GARCH models are used to capture persistence and asymmetric responses. The results show that volatility behaviour is strongly state- dependent and differs across asset classes. For REITs, positive shocks generate stronger volatility responses during the two crisis episodes, while negative shocks dominate during tranquil periods. Conventional equities also exhibit asymmetric volatility, although the magnitude and persistence of shocks vary across regimes. Half-life estimates indicate that volatility shocks dissipate rapidly during crises but persist longer in tranquil markets, particularly for conventional stocks. Overall, the findings challenge the view of REITs as uniformly low-risk assets and show that their risk characteristics depend on market conditions. The results support regime-sensitive volatility modelling for portfolio allocation, diversification, risk management, and financial-stability assessments.

View PDF – https://doi.org/10.53383/100429

Keywords

REITs, Volatility, GARCH, EGARCH, Asymmetric effects, Episodic dynamics