Analyses for the Effects of Investor Sentiment on the Price Adjustment Behaviors for REIT and Stock Markets

This study examines the effects of investor sentiment on the price adjustment behaviors for real estate investment trust (REIT) and the stock prices by applying the threshold error correction (EC) model. We defined the regimes and estimated the endogenously threshold level by the five investor sentiment proxies: the VIX index, the VXO index, the put/call ratio, and two search volume indexes provided by Google Trends. The empirical results reveal that there are asymmetric effects of investor sentiment on the price adjustment behaviors for both the REIT and stock returns. The coefficients of price adjustment are significantly negative values under most regimes constructed by the different investor sentiment proxies. Moreover, the adjustment degree in upper regime is greater than that in lower regime. Thus, if market participants are strongly bearish or their attention level was high (i.e., in the upper regime), they will quickly adjust their portfolios in response to an economic shock. For all regimes, the efficiency of the price adjustment behavior is greater in the REIT market than in the stock market. The results also reveal the significant lead-lag relationships between the REIT and stock markets under the most regimes.