The authors thank Kenneth French for providing the three-factor return series.

It is well known that expected returns vary by industry (Lyon et al., 1999), and that REIT-based mimicking portfolios may capture the information in real estate investment trust (REIT) prices (Downs, 2000). This study performs REIT-based mimicking portfolio analysis. The results indicate that when the Capital Asset Pricing Model and the Fama-French (1993) three- factor model are used to evaluate the performance of a REIT portfolio, the probability for making Type I error exceeds its significance level. Performance tests are better specified when mimicking portfolios are constructed with the firms from the REIT industry. In addition, the market beta of REIT portfolios appears to converge to the market beta of the NCREIF Index when REIT-based mimicking portfolios are included into the specification. The result is consistent with the notion that there is a strong linkage between REIT returns and the underlying real estate factor (Ziering et al., 1997).

No abstract

The study examines additions to and deletions from the Russell Value Index and the Russell 2000 Growth Index. The study documents stronger comovement in value reconstitutions relative to growth reconstitutions. This result is consistent with the hypothesis that nonfundamental comovement is related to the common factor in value stock returns. The mechanism of causality is difficult to determine, however; trade demand, firm characteristics and information diffusion are presented as potential sources that could explain why comovement of small to mid-cap value stocks is greater than the comovement of small to mid-cap growth stocks.

No abstract