The Characteristics of REITs During the Financial Crisis: Evidence from the Stock and Option Markets

Abstract

In this thesis, we examine the characteristics of real estate investment trust (REIT) equity with the sample of Simon Property Group Inc. (SPG) during the financial crisis (from 2006 to 2008). Diavatopoulos, Fodor et al. (2010) study the characteristics of REITs equities and options between 1996 and 2006. We follow their idea and test the influence of the financial crisis on REITs. Contrary to the finding by Diavatopoulos, Fodor et al. (2010), we find that systematic risk drives the risk of both SPG equity and option during the financial crisis. Moreover, we apply an AR(1) model to estimate the conditional idiosyncratic volatility of SPG. For SPG, both implied volatility and historical realized volatility are strong predictors of future realized volatility. Furthermore, the conditional volatility estimated by AR(1) and historical idiosyncratic volatility are also significantly related to future idiosyncratic volatility. Finally, we suggest that none of our SPG volatility measures is a significant factor in predicting SPG returns.