Noise Trader Risk on REIT Industry Excess Returns and Volatility

This paper employs a GARCH-M model to test for the asymmetric effect of changes in individual and institutional investor sentiment on REIT industry returns and conditional volatility. Empirical results suggest that changes in institutional investor sentiment have a larger effect on REIT industry returns and volatility than do changes in individual investor sentiment. More specifically, bearish shifts in institutional investor expectations of future market conditions have a significantly larger impact on returns and volatility than bullish shifts. Our findings suggest that noise traders impose significant systemic risk on the realization of REIT industry returns. Results align with the DeBondt and Thaler (1985) overreaction hypothesis