This study investigates whether the behavior of real estate investment trusts (REITs) is more like that of common stocks or bonds by inspecting the conditional variance of the stock market. The analysis indicates that the REITs returns in Japan and the United States exhibit the same hybrid form. This must depend on the state of the market risk as a result of dividing the stock market volatility into a low-level and a high-level regime. When the volatility of market returns lies in a low-level regime, the REIT returns tend toward traditional stock forms, but do not lie in a high-level regime. Our findings help to reconcile the controversy of previous studies with regard to the REITs characteristics. In addition, the interest rate sensitivity of REIT returns in the two countries is significantly different and can be attributed to the different expectations of market investors.