Extreme Risk of Public Timber REITs during the Global Financial Crisis

Abstract

A conditional volatility model with extreme value statistics is employed to assess the time-varying risk inherent in three real estate investment trusts (REITs) that have specialized in owning or managing timberlands. Among the four alternative approaches, the conditional extreme value model provides the best risk estimates. The estimated risk of individual timber REITs varies with time. During the volatile period between 2008 and 2009, the absolute values of daily Value-at-Risk (VaR) estimates indicate that an investor could lose up to 13% of an investment over one day with a 99% confidence level.