Testing the Forecasting Power of Oil Prices in the Volatility of REITS: The Role of Asymmetries and Economic Conditions

This study examines whether oil prices can predict the volatility of Real Estate Investment Trusts (REITs). Using a multi-predictor framework grounded in the CAPM and APT, we model both symmetric and asymmetric oil price effects, extending the framework to incorporate economic conditions. Bias-adjusted OLS and FQGLS estimators are employed to address potential endogeneity and heteroscedasticity. Out-of-sample tests show that models incorporating asymmetric oil dynamics and economic conditions yield superior forecasts. By focusing on REIT volatility, the study demonstrates the importance of accounting for asymmetry and macroeconomic context, offering valuable implications for risk management, portfolio allocation, and policy in real estate markets.