Milcheva, S;
(2020)
Volatility and the Cross-Section of Real Estate Equity Returns during COVID-19.
SSRN: Amsterdam, Netherlands.
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Abstract
This paper uses the global systemic shock associated with the outbreak of the novel coronavirus COVID-19 to assess the risk-return relationship in the cross-section of real estate equities internationally. I construct a global COVID-19 risk factor to capture the risk exposure of individual stocks to the pandemic. The paper also assesses the low-risk effect puzzle in real estate stocks. I find that the average firm sensitivity to the COVID-19 risk factor increases from close to zero prior to the pandemic to 0.6 during the pandemic with large variations across countries and sectors. Fama-MacBeth regressions reveal evidence for a low-risk effect – both through market and COVID-19 risks – which is not be associated with behavioral biases but rather with financial constraints. Consistent with recent research, the findings in this paper suggest that investors perceive the shock caused by the COVID-19 to be amplified by financial channels.
| Type: | Working / discussion paper |
|---|---|
| Title: | Volatility and the Cross-Section of Real Estate Equity Returns during COVID-19 |
| Open access status: | An open access version is available from UCL Discovery |
| Publisher version: | https://papers.ssrn.com/sol3/papers.cfm?abstract_i... |
| Language: | English |
| Additional information: | This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Low-risk effect, coronavirus, COVID-19 risk factor, pandemic, financial constraints, behavioral effects, factor model, cross-section of returns, commercial real estate, REITs, systemic risk, idiosyncratic volatility |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment |
| URI: | https://discovery-pp.ucl.ac.uk/id/eprint/10115964 |
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