Revisiting the volatility dynamics of REITs amid economic and geopolitical uncertainties: The role of economic conditions in a GARCH-MIDAS framework

This study investigates REIT volatility under macroeconomic and geopolitical uncertainty using an extended GARCH-MIDAS framework. It incorporates Global Economic Policy Uncertainty (GEPU) and Global Economic Conditions (GECON) as low-frequency predictors, examining their individual and interactive effects across developed and emerging markets. To capture structural shifts and nonlinear dynamics, the model is enhanced with regime-switching variants: MS-GARCH-MIDAS and the flexible FTP-MS-GARCH-MIDAS. Results show that GEPU significantly increases REIT volatility, especially in emerging markets. While GECON’s direct effects are mixed, its interaction with GEPU reveals that volatility responses are conditional on macroeconomic strength supporting theories of real options and ambiguity aversion. Out-of-sample forecasts using the Diebold-Mariano test confirm that interaction-enriched models, particularly those with FTP-based regime switching, outperform simpler benchmarks. A robustness test replacing GEPU with Geopolitical Risk (GPR) yields similar findings. The FTP-MS-GARCH-MIDAS model using GPR*GECON offers the strongest predictive performance. These results highlight the importance of accounting for regime shifts and uncertainty-macroeconomy interactions in REIT volatility modelling. For investors and policymakers, the study provides valuable insights into the time-varying and conditional nature of volatility under global uncertainty. It contributes to the literature by validating the superior forecasting power of regime-aware, interaction-based GARCH-MIDAS models.