The Impact of Implied Volatility Index (VIX) and Disposable Income on Real Estate Investment Trust (REITS)
Limaye, Aditya R
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This dissertation expands on the literature on investor sentiment and REITs returns by correlating an alternative measure of investor sentiment, the Implied Volatility Index (VIX), published by the Chicago Board of Options Exchange, and REITs returns. The empirical results show that changes in VIX are negatively correlated to REITs returns. This indicates that an increase in the VIX leads to greater fear among investors thus reducing the REITs returns. Equally or more significantly, this study adds to the REITs returns literature by examining the impact of changes in the ratio of labor income to consumption on REITs returns. The empirical results show that changes in the ratio of labor income to consumption are negatively correlated to REITs returns. This research is important for individuals and financial institutions seeking to invest in REITs. Individuals’ income plays an important role in determining their ability to invest in REITs and REITs are an important source of diversification today due to the reduction of regulations in the REITs industry and their level of income. Institutions seeking to invest in REITs require the participation of individuals and the ability of the individuals to participate in the REITs market depends on their income.