Risk and Return on Real Estate: Evidence from Equity REITs

Loading...
Thumbnail Image
Penn collection
Business Economics and Public Policy Papers
Degree type
Discipline
Subject
Business
Economics
Public Affairs, Public Policy and Public Administration
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Chan, K. C
Hendershott, Patrick H
Sanders, Anthony B
Contributor
Abstract

We analyze monthly returns on an equally weighted index of eighteen to twenty-three equity (real property) real estate investment trusts (REITs) that were traded on major stock exchanges over the 1973–87 period. We employ a multifactor Arbitrage Pricing Model using prespecified macroeconomic factors. We also test whether equity REIT returns are related to changes in the discount on closed-end stock funds, which seems plausible given the closed-end nature of REITs. Three factors, and the percentage change in the discount on closed-end stock funds, consistently drive equity REIT returns: unexpected inflation and changes in the risk and term structures of interest rates. The impacts of these variables on equity REIT returns is around 60% of the impacts on corporate stock returns generally. As expected, the impacts are greater for more heavily levered REITs than for less levered REITs. Real estate, at least as measured by the return performance of equity REITs, is less risky than stocks generally, but does not offer a superior risk-adjusted return and is not a hedge against unexpected inflation.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
1990-12-01
Journal title
Real Estate Economics
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection