On the hedging benefits of reits: The role of risk aversion and market states

Demirer R., Yuksel A., Yüksel S. A.

Economics and Business Letters, cilt.10, sa.2, ss.126-132, 2021 (ESCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 10 Sayı: 2
  • Basım Tarihi: 2021
  • Doi Numarası: 10.17811/ebl.10.2.2021.126-132
  • Dergi Adı: Economics and Business Letters
  • Derginin Tarandığı İndeksler: Emerging Sources Citation Index (ESCI), Scopus, Business Source Elite, Business Source Premier, EconLit, DIALNET
  • Sayfa Sayıları: ss.126-132
  • Anahtar Kelimeler: real estate investment trusts, risk aversion, Markov switching, hedging
  • TED Üniversitesi Adresli: Hayır

Özet

We propose a dynamic, forward-looking hedging strategy to manage stock market risks via positions in REITs, conditional on the level of risk aversion. Our findings show that risk aversion can predict transitions to the high volatility regime in REIT markets when these markets are relatively calm. Accordingly, a hedge on/hedge off strategy based on the level of risk aversion with positions in REITs offer significant risk reduction for passive investors with the greatest benefits observed for the U.S. followed by the U.K. Our findings highlight the role of time-varying risk aversion as a predictor of REIT market volatility and the value of REIT investments as a hedge against stock market fluctuations.