Do oil-price shocks predict the realized variance of U.S. REITs?
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Date
Authors
Bonato, Matteo
Cepni, Oguzhan
Gupta, Rangan
Pierdzioch, Christian
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
We examine, using aggregate and sectoral U.S. data for the period 2008–2020, the predictive power of disentangled oil-price shocks for Real Estate Investment Trusts (REITs) realized market variance via the heterogeneous auto-regressive realized variance (HAR-RV) model. In-sample tests show that demand and financial-market-risk shocks contribute to a larger extent to the overall fit of the model than supply shocks, where the in-sample transmission of the impact of the shocks mainly operates through their significant effects on realized upward (“good”) variance. Out-of-sample tests corroborate the significant predictive value of demand and financial-market-risk shocks for realized variance and its upward counterpart at a short, medium, and long forecast horizon, for various recursive-estimation windows, for realized volatility (that is, the square root of realized variance), for a shorter sub-sample period that excludes the recent phase of exceptionally intense oil-market turbulence, and for an extended benchmark model that features realized higher-order moments, realized jumps, and a leverage effect as control variables. We also study a quantiles-based extension of the HAR-RV model, and we analyze the economic benefits of using shocks for realized-variance forecasting.
Description
Keywords
Oil price shocks, Real estate investment trust (REIT), Realized variance, Forecasting, Heterogeneous autoregressive realized variance (HAR-RV)
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Citation
Bonato, M., Çepni, O., Gupta, R. et al. 2021, 'Do oil-price shocks predict the realized variance of U.S. REITs?', Energy Economics, vol. 104, art. 105689, pp. 1-19, doi : 10.1016/j.eneco.2021.105689.