Impact of volatility and equity market uncertainty on herd behaviour: Evidence from UK REITs

Omokolade Akinsomi, Yener Coskun, Rangan Gupta, Chi Keung Lau

Research output: Contribution to journalArticle

1 Citation (Scopus)

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.
LanguageEnglish
Pages169-186
Number of pages18
JournalJournal of European Real Estate Research
Volume11
Issue number2
DOIs
Publication statusPublished - 26 Jul 2018
Externally publishedYes

Fingerprint

Real estate investment trusts
Equity markets
Market uncertainty
Herd behavior
Herding behavior
Herding
Volatility index
Investors
Diversification
Risk-return
Design methodology
Value management
Psychology
Uncertainty
Factors
London Stock Exchange
Analysts
Markov regime switching model
Market sentiment
Regime-switching model

Cite this

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title = "Impact of volatility and equity market uncertainty on herd behaviour: Evidence from UK REITs",
abstract = "PurposeThis 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/approachObservations 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. FindingsAlthough 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/valueThe 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.",
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Impact of volatility and equity market uncertainty on herd behaviour : Evidence from UK REITs. / Akinsomi, Omokolade ; Coskun, Yener ; Gupta, Rangan ; Lau, Chi Keung.

In: Journal of European Real Estate Research, Vol. 11, No. 2, 26.07.2018, p. 169-186.

Research output: Contribution to journalArticle

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