Business Economics and Public Policy Papers

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Journal Article

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Real Estate Economics





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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.

Copyright/Permission Statement

This is the peer reviewed version of the following article: Chan, K. C., Hendershott, P. H. and Sanders, A. B. (1990), Risk and Return on Real Estate: Evidence from Equity REITs. Real Estate Economics, 18: 431–452. doi:10.1111/1540-6229.00531, which has been published in final form at This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving



Date Posted: 27 November 2017

This document has been peer reviewed.