A high-frequency analysis of the interactions between REIT return and volatility

This paper makes the first attempt in the real estate literature to test the two hypotheses depicting the interactions between return and volatility - the leverage effect and volatility feedback effect. By employing high-frequency data, we find that both leverage and volatility feedback effects are at work and highly persistent in the U.S. REIT market. The leverage effect dominates the volatility feedback effect. More importantly, both effects are found nonlinear - a feature matching the tendency of the financial market to often change its behavior. Further analysis suggests that the nonlinearity arises from multiple sources (e.g. regime switching, structural breaks, and outliers). Our findings are robust to different data sampling frequencies. All in all, they lead to a better understanding of the recent movement of REIT volatility and have profound implications for asset pricing.