Please use this identifier to cite or link to this item: https://scholarbank.nus.edu.sg/handle/10635/222243
Title: DYNAMICS OF MARKET AND IDIOSYNCRATIC RISKS IN THE US REIT MARKETS
Authors: TO THANH TUYEN
Keywords: Real Estate
Issue Date: 28-May-2009
Citation: TO THANH TUYEN (2009-05-28T10:50:02Z). DYNAMICS OF MARKET AND IDIOSYNCRATIC RISKS IN THE US REIT MARKETS. ScholarBank@NUS Repository.
Abstract: According to the capital asset pricing model and modern portfolio theory, only the non-diversifiable systematic risk is important in asset pricing and the idiosyncratic risk can be completely diversified away in a well-diversified portfolio. However, in reality most investors do not hold well diversified portfolios and the significance of the idiosyncratic risk remains robust in the volatility of REITs. The main objective of this study is to examine whether the US REIT markets have become more volatile over the past 20 years (1988 – 2008). The study attempts to investigate the evolution of market, idiosyncratic risks and average correlations (both unconditional and conditional) by examining the time series behavior, long run trends and short run dynamics. Furthermore, the study also attempts to examine the relation between aggregate returns and volatilities (both idiosyncratic and market) over the past 20 years. This study finds that the market and idiosyncratic volatilities of the US REIT markets are fairly stable over the past two decades. In other words, the US REIT markets have not become more volatile. However, the average correlations (both unconditional and conditional) among REITs exhibit significant upward trends over the past 20 years. In addition, the three volatility measures, namely market, idiosyncratic and total variances are positively correlated with each other and the market volatility tends to lead to idiosyncratic volatility. Lastly, the study finds a positive relationship between average returns and idiosyncratic volatility.
URI: https://scholarbank.nus.edu.sg/handle/10635/222243
Appears in Collections:Bachelor's Theses

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