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The real estate investment trust (REIT) industry experienced a liquidity crisis resulting from reduced access to credit commitments as banks were restoring their balance sheets during the 2007–2009 financial crisis. Employing generalized autoregressive conditional heteroscedasticity (GARCH) models, we examine the impact of the liquidity crisis and investor sentiment on REIT returns and volatility over the December 2001 to February 2013 period. We find that the liquidity crisis negatively impacts REIT returns and helps explain increases in volatility; this finding is robust to multiple specifications. We show that investor sentiment is a significant factor in the REIT return-generating process with institutional sentiment playing a dominating role over individual sentiment; furthermore, institutional sentiment was the only relevant sentiment variable during liquidity crisis.


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Journal of Real Estate Portfolio Management





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