Another Look at the Asymmetric REIT-Beta Puzzle

Kevin C.H. Chiang · Ming‐Long Lee · Craig Hanes Wisen

42 citations0/0 files storedJournal of Real Estate Research

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Financial Markets and Investment Strategies Housing Market and Economics Financial Analysis and Corporate Governance

Abstract

The diversification benefit provided by real estate investment trusts (REITs) is of great importance to investors, practitioners and academics. This benefit critically relies on the correlation properties between REIT returns and the factors used to explain REIT returns. Recent studies have documented an asymmetry of the market-beta of equity REITs based on high and low GDP growth states as well as in positive and negative monthly market excess returns. The asymmetry has been labeled a puzzle because attempts to explain the asymmetry have failed and because it persists after controlling for a number of known effects. This study helps to resolve this puzzle by including the Fama-French (1993) book-to-market factor into a model that controls for size and market returns.

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References

1993Common risk factors in the returns on stocks and bonds 1981The relationship between return and market value of common stocks 1981Misspecification of capital asset pricing 1993Return Properties of Equity REITs, Common Stocks, and Commercial Real Estate: A Comparison 1995The Historical Performance of Real Estate Investment Trusts 1998The Predictability of Equity REIT Returns 1990Real Estate Risk and the Business Cycle: Evidence from Security Markets 2002REITs in the decentralized investment industry

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