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Impact of Volatility and Equity Market Uncertainty on Herd Behavior: Evidence from UK REITs

Author

Listed:
  • Omokolade Akinsomi

    () (School of Construction Economics and Management, University of Witwatersrand, Johannesburg, South Africa)

  • Yener Coskun

    () (Capital Markets Board of Turkey, Eskisehir Yolu, Ankara, Turkey)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria, Pretoria, South Africa.)

  • Chi Keung Marco Lau

    () (Newcastle Business School, Northumbria University, Newcastle, UK)

Abstract

Employing static and dynamic models that capture herding under different market regimes, we provide novel evidence on the herding behaviour of UK-listed Real Estate Investment Trusts (REITs). Our sample is extensive and covers the period from 30/6/2004 to 5/4/2016. Estimates of herding behaviour are derived using a Markov regime-switching model. The analysis suggests 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 regimes switching model reveal substantial evidence of herding behaviours under the low volatility regime. Most interestingly we observe a shift from anti-herding behaviour during high volatility regimes to herding behaviour under low volatility regime, with this caused by the UK VIX.

Suggested Citation

  • 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.
  • Handle: RePEc:pre:wpaper:201688
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Herd behavior; UK REITs; Markov-switching; Time-varying probabilities;

    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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