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Pricing of Volatility Risk in REITs


  • R. Jared DeLisle

    () (Washington State University)

  • S. McKay Price

    () (Lehigh University)

  • C.F. Sirmans

    () (Florida State University)


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.

Suggested Citation

  • R. Jared DeLisle & S. McKay Price & C.F. Sirmans, 2013. "Pricing of Volatility Risk in REITs," Journal of Real Estate Research, American Real Estate Society, vol. 35(2), pages 223-248.
  • Handle: RePEc:jre:issued:v:35:n:2:2013:p:223-248

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    Cited by:

    1. Abugri, Benjamin A. & Dutta, Sandip, 2014. "Are we overestimating REIT idiosyncratic risk? Analysis of pricing effects and persistence," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 249-259.
    2. Tumellano Sebehela, 2016. "Portfolio Formation Memory," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(02), pages 1-16, June.
    3. repec:kap:jrefec:v:54:y:2017:i:3:d:10.1007_s11146-016-9574-z is not listed on IDEAS
    4. repec:kap:jrefec:v:54:y:2017:i:3:d:10.1007_s11146-016-9573-0 is not listed on IDEAS
    5. Greg MacKinnon & Jon Spinney, 2017. "Low Volatility Investing in U.S. Equity REITs," International Real Estate Review, Asian Real Estate Society, vol. 20(1), pages 1-21.
    6. Gerlach, Richard & Obaydin, Ivan & Zurbruegg, Ralf, 2015. "The impact of leverage on the idiosyncratic risk and return relationship of REITs around the financial crisis," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 207-219.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services


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