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Time-Varying Risk Premia for Size Effects on Equity REITS

Author

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  • Guangdi Chang
  • Yi-Tsuo Chang

Abstract

We examine if the risk premia of the size effect on equity REITs (EREITs) are time-varying by using GARCH models. We also investigate how macroeconomic factors affect the size premia. We reexamine the size effect by using Fama-French three-factor model to demonstrate that the size effect exists in EREITs market. We investigate time-varying volatility for size effect by using a sample of publicly traded EREITs with GARCH family models. We find variation of the size premia partially results from volatility the bond market term spread and the volatility of short-term interest rates. The unexpected shock from fluctuation of the bond market term spread lowers the volatility of the size premia on EREITs return. We also find the big-sized EREITs are a good investment when default risk premium fluctuates dramatically.

Suggested Citation

  • Guangdi Chang & Yi-Tsuo Chang, 2013. "Time-Varying Risk Premia for Size Effects on Equity REITS," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(4), pages 13-28.
    • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:4:p:13-28
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    Citations

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    Cited by:

    1. Salehi , Mahdi & Zamani , Mohammad, 2014. "Market Risk Recognition by Different Models in Listed Banks of Tehran Stock Exchange and OTC," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 9(1), pages 147-176, October.
    2. Yener Cos‚kun & A. Sevtap Selcuk-Kestel & Bilgi Yilmaz, 2017. "Diversification benefit and return performance of REITs using CAPM and Fama-French: Evidence from Turkey," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(4), pages 199-215, December.

    More about this item

    Keywords

    Equity REITs; Size Effect; GARCH; VAR; Volatility; Leverage Effect;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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