Impact of volatility and equity market uncertainty on herd behaviour: evidence from UK REITs

Abstract

Purpose This paper aims to examine herding behaviour among investors and traders in UK-listed Real Estate Investment Trusts (REITs) within three market regimes (low, high and extreme volatility periods) from the period June 2004 to April 2016. Design/methodology/approach Observations of investors in 36 REITs that trade on the London Stock Exchange as at April 2016 were used to analyse herding behaviour among investors and traders of shares of UK REITs, using a Markov regime-switching model. Findings Although a static herding model rejects the existence of herding in REITs markets, estimates from the regime-switching model reveal substantial evidence of herding behaviour within the low volatility regime. Most interestingly, the authors observed a shift from anti-herding behaviour within the high volatility regime to herding behaviour within the low volatility regime, with this having been caused by the FTSE 100 Volatility Index (UK VIX). Originality/value The results have various implications for decisions regarding asset allocation, diversification and value management within UK REITs. Market participants and analysts may consider that collective movements and market sentiment/psychology are determinative factors of risk-return in UK REITs. In addition, general uncertainty in the equity market, proxied by the impact of the UK VIX, may also provide a signal for increasing herding-related risks among UK REITs.

Uncertainty and herding behavior: evidence from cryptocurrencies

“…Therefore, herding behavior implies that security dispersions (i.e. CSADt) will decrease with the absolute value of the market return, since each asset becomes similar with regard to sensitivity to the market return (Akinsomi et al, 2018). Chang et al (2000) suggested that during periods of market stress, one would expect return dispersion (i.e.…”

“…In the figure , {𝑆 } denotes the sample path of a first-order, 𝛽 : denotes transition probability parameter vectors and two transition probabilities are time varying, evolving as logistic functions of 𝑥′ 𝛽 , 𝑖 = 0,1 , where the (𝑘𝑥1) conditioning vector 𝑥 contains economic variables that affect the state transition probabilities (Diebold et al, 1994). The main advantage of the TV-MS model against the constant transition probability specification is that it allows the duration of herd behavior to vary across different regimes of market volatility (Akinsomi et al, 2018). It also allows determination of the effect of economic policy uncertainty and market sentiment, as measured by the US Daily News Index (EPU).…”

The development and initial performance analysis of REITs in Ireland

“…The increasing popularity of REITs in many major European markets has resulted in a considerable number of empirical studies concentrated on their respective qualitative and quantitative investment characteristics. For example, in Spain (Marzuki and Newell, 2018), Germany (Newell and Marzuki, 2018), the UK (Akinsomi et al, 2018;Jadevicius and Lee, 2017;Newell and Marzuki, 2016), Belgium (Marzuki and Newell, 2019), Turkey (Erol and Tirtiroglu, 2011) and France (Newell et al, 2013 significance of REITs has attracted considerable research interest with a number of studies on Irish REITs scrutinising the crucial role of REITs in the post-GFC recovery, such as their role in stimulating the private rented sector of the Irish housing segment (Duffy et al, 2017) and as an exit mechanism to offload property assets (Mercille and Murphy, 2016). However, an empirical analysis of the investment attributes of Irish REITs is yet to be documented in the literature.…”

Brexit referendum and the UK securitization market

“…There is evidence for this argument in the case of Brexit uncertainty (Schiereck et al 2016, Akinsomi et al, 2018.…”