On the Risk of Novel Specialized REITs

Under the multivariate GARCH framework, we examined the risk characteristics of six groups of novel specialized REITs in the United States, which had experienced significant changes from 2004 to 2019. The six groups are healthcare, hotel, self-storage, mortgaged-backed security (MBS), high-tech, and timber REITs. Results show that the six specialized REIT groups displayed different patterns of volatility surrounding the 2007–2009 financial crisis. The volatilities and dynamic conditional correlations (DCC) reached their peaks during the financial crisis and recovered two years afterwards. Mostly positive DCCs imply that the diversification effect was weak among the specialized REIT groups. Specialized REITs exhibited lower risks than the overall market. Among the three subsample (pre-crisis, crisis, and post-crisis) periods and across all specialized REIT groups, conditional variance was the smallest and excess kurtosis was the largest over the pre-crisis period; constant variance was the largest during the crisis; and skewness was the largest and correlations were the most volatile after the crisis. For individual REIT groups, healthcare and hotel REITs had the smallest and largest excess kurtosis; MBS and hotel REITs had the smallest and largest systematic and total risks; and self-storage and MBS REITs had the weakest and strongest leverage effect, respectively. In addition, high-tech REITs had the largest mean returns as well as increasing time-varying correlations with other groups before the crisis, and healthcare and high-tech REITs had more skewed returns than MBS and timber REITs.