Revisiting the Volatility Dynamics of REITs Amid Uncertainty and Investor Sentiment: A Predictive Approach in GARCH‐MIDAS

ABSTRACT We analyze the impact of investor sentiment on forecasting daily return volatility across various international Real Estate Investment Trust (REIT) indices. Notably, we propose that economic policy uncertainty plays a significant role in shaping investor sentiment and enhances its predictive power regarding REIT volatility. To address the mixed‐frequency nature of the involved variables, we utilize the GARCH‐MIDAS framework, which effectively mitigates the issues of information loss associated with data aggregation, as well as the biases resulting from data disaggregation. Our findings provide compelling evidence of improved forecasting in models that incorporate investor sentiment, demonstrating significant in‐sample predictability. This suggests that heightened expressions of sentiment in investor behavior tend to amplify risks linked to international REITs. Further analysis indicates that economic policy uncertainty may enhance the forecasting capacity of investor sentiment for out‐of‐sample REIT volatility predictions. Consequently, it is crucial to monitor global economic policy uncertainty and recognize its potential effects on investor sentiment for optimal investment decision‐making.