Abstract
Purpose
This paper examines herding behaviour among investors in UK-listed Real Estate Investment Trusts (REITs) within three market regimes (low, high and extreme volatility periods) from the period June 2004 to April 2016.
Design/methodology/approach
Observations of investors in 36 REITs that trade on the London Stock Exchange as at April 2016 were used to analyse herding behaviour among investors of shares of UK REITs, employing a Markov regime-switching model.
Findings
Although a static herding model rejects the existence of herding in REITs markets, estimates of the regime-switching model reveal substantial evidence of herding behaviour within the low volatility regime. Most interestingly, we observed a shift from anti-herding behaviour within the high volatility regime to herding behaviour within the low volatility regime, with this having been caused by the FTSE 100 Volatility Index (UK VIX).
Originality/value
The results have various implications for decisions concerning asset allocation, diversification and value management within UK REITs. Market participants and analysts may take into account that collective movements and market sentiment/psychology are determinative factors of risk-return of UK REITs. In addition, general uncertainty in the equity market, proxied by the impact of the UK VIX, may also provide a signal for increasing herding-related risks within UK REITs.
This paper examines herding behaviour among investors in UK-listed Real Estate Investment Trusts (REITs) within three market regimes (low, high and extreme volatility periods) from the period June 2004 to April 2016.
Design/methodology/approach
Observations of investors in 36 REITs that trade on the London Stock Exchange as at April 2016 were used to analyse herding behaviour among investors of shares of UK REITs, employing a Markov regime-switching model.
Findings
Although a static herding model rejects the existence of herding in REITs markets, estimates of the regime-switching model reveal substantial evidence of herding behaviour within the low volatility regime. Most interestingly, we observed a shift from anti-herding behaviour within the high volatility regime to herding behaviour within the low volatility regime, with this having been caused by the FTSE 100 Volatility Index (UK VIX).
Originality/value
The results have various implications for decisions concerning asset allocation, diversification and value management within UK REITs. Market participants and analysts may take into account that collective movements and market sentiment/psychology are determinative factors of risk-return of UK REITs. In addition, general uncertainty in the equity market, proxied by the impact of the UK VIX, may also provide a signal for increasing herding-related risks within UK REITs.
Original language | English |
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Pages (from-to) | 169-186 |
Number of pages | 18 |
Journal | Journal of European Real Estate Research |
Volume | 11 |
Issue number | 2 |
DOIs | |
Publication status | Published - 26 Jul 2018 |
Externally published | Yes |