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Revisiting Herding Behavior in REITs: A Regime-Switching Approach

Author

Listed:
  • Vassilios Babalos

    (Department of Accounting & Finance, Technological Educational Institute of Peloponnese, Greece)

  • Mehmet Balcilar

    (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus , via Mersin 10, Turkey)

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

Abstract

Employing a dynamic model that captures herding under different market regimes we provide novel evidence on the herding behavior of US-listed Real Estate Investment Trusts (REITs). Our sample is extensive and covers the period from 2/1/2004 to 28/6/2013. Estimates of herding behavior are derived using a Markov regime-switching model. The preliminary analysis confirms the existence of three market regimes (low, high and extreme or crash volatility) with transition ordered as `low, high and crash volatility’. Although static herding model rejects the existence of herding in REITs markets estimates of the regime-switching model reveal substantial evidence of herding behavior under the crash regime for almost all sectors. Most interestingly we observe a shift from negative herding behavior during low and high volatility regimes to positive herding behavior under crash regime for almost all REITs sectors.

Suggested Citation

  • Vassilios Babalos & Mehmet Balcilar & Rangan Gupta, 2014. "Revisiting Herding Behavior in REITs: A Regime-Switching Approach," Working Papers 201448, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201448
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    Cited by:

    1. Omokolade Akinsomi & Yener Coskun & Rangan Gupta & Chi Keung Marco Lau, 2016. "Impact of Volatility and Equity Market Uncertainty on Herd Behavior: Evidence from UK REITs," Working Papers 201688, University of Pretoria, Department of Economics.
    2. Omokolade Akinsomi & Yener Coskun & Rangan Gupta, 2016. "Analysis of Herding in REITs of an Emerging Market: The Case of Turkey," Working Papers 201666, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Cross sectional dispersion; Herding; REITs; regime-switching;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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