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Are there bubbles in the REITs market? New evidence using regime-switching approach

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  • Ohannes George Paskelian
  • M. Kabir Hassan
  • Kathryn Whittaker Huff

Abstract

This study looks for the presence of rational speculative bubbles in Real Estate Investment Trusts (REITs) using unit-root, variance ratio, duration dependence and regime switching regression tests. The regime switching method provides weak evidence of speculative bubble behaviour in both the mortgage and hybrid REITs sectors even though traditional econometric bubble tests do not provide evidence of rational speculative bubbles in all REIT markets. Findings suggest that price movement in mortgage and hybrid REITs may be induced by bubble-like behaviour of investors. This behaviour may be traced to the real estate market bubble. Our results provide evidence that the real estate bubble that started in early 2000 was transmitted into securitized real estate markets. A regime switching model also provides a clear metric that signals the probability of a collapsing bubble. This is something with the potential to be appreciably helpful to portfolio managers.

Suggested Citation

  • Ohannes George Paskelian & M. Kabir Hassan & Kathryn Whittaker Huff, 2011. "Are there bubbles in the REITs market? New evidence using regime-switching approach," Applied Financial Economics, Taylor & Francis Journals, vol. 21(19), pages 1451-1461.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:19:p:1451-1461
    DOI: 10.1080/09603107.2011.577009
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    References listed on IDEAS

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    2. Anderson, Keith & Brooks, Chris & Katsaris, Apostolos, 2010. "Speculative bubbles in the S&P 500: Was the tech bubble confined to the tech sector?," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 345-361, June.
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    4. George A. Waters & James E. Payne, 2007. "REIT markets and rational speculative bubbles: an empirical investigation," Applied Financial Economics, Taylor & Francis Journals, vol. 17(9), pages 747-753.
    5. Olivier J. Blanchard & Mark W. Watson, 1982. "Bubbles, Rational Expectations and Financial Markets," NBER Working Papers 0945, National Bureau of Economic Research, Inc.
    6. Deqing Diane Li & Kenneth Yung, 2004. "Short Interests in Real Estate Investment Trusts," International Real Estate Review, Global Social Science Institute, vol. 7(1), pages 56-70.
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    Citations

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    Cited by:

    1. Vassilios Babalos & Mehmet Balcilar & Rangan Gupta, 2014. "Revisiting Herding Behavior in REITs: A Regime-Switching Approach," Working Papers 201448, University of Pretoria, Department of Economics.
    2. Huerta-Sanchez, Daniel & Jafarinejad, Mohammad & Kim, Dongshin & Soyeh, Kenneth W., 2020. "Disentangling bubbles in equity REITs," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 357-367.
    3. Patrick Krieger & Carsten Lausberg & Kristin Wellner, 2018. "Einblicke in die Gründe für nicht-normalverteilte Immobilienrenditen: eine explorative Untersuchung deutscher Wohnimmobilienportfolios [Insights into the reasons for non-normal real estate returns:," Zeitschrift für Immobilienökonomie (German Journal of Real Estate Research), Springer;Gesellschaft für Immobilienwirtschaftliche Forschung e. V., vol. 4(1), pages 49-79, November.
    4. Vijay Kumar Vishwakarma & Ohannes George Paskelian, 2012. "Bubble In The Indian Real Estate Markets: Identification Using Regime-Switching Methodology," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(3), pages 27-40.
    5. Maximilian Brauers & Matthias Thomas & Joachim Zietz, 2014. "Are There Rational Bubbles in REITs? New Evidence from a Complex Systems Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 49(2), pages 165-184, August.

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