International audienceThis paper empirically investigates the risk factors of the property swap prices using 4 years of price data relative to the UK Investment Property Databank (IPD) Total Return All Property Swap. The implied forward rates are analyzed with a first difference model to determine its main components. Regarding the risk free rate, the traditional sport-forward relation does not hold for property derivatives. The impact of the risk free rate on forward rates appears as being complex and made of different effects; it varies according to time and maturities. Derivatives prices take into account the smoothing effect of the underlying index and REITs stocks are also relevant to explain these prices. The informational content of the swap is important. The impact of the REITs and of the smoothing decreases with maturities. The risk factor structure obtained is more complex than found in many other studies relative to commodities, securities or bonds. Possible reasons for this phenomenon are discussed

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Purpose – This paper aims to analyze the statistical characteristics of changes in property forward prices. As highlighted in a survey conducted at the MIT Center for Real Estate in 2006, the relatively weak understanding in their prices is one of the most important barriers in their use. In this context, the analysis of the forward price term structure is essential. Do the short- and long-term forward prices behave similarly? Do property derivatives behave like other derivative assets or other related assets? This study also investigates the lead–lag relationship between spot and forward returns for different maturities. Design/methodology/approach – Using four years and nine months of data on the UK Investment Property Databank (IPD), all property total return swaps are examined. We strip the swaps into their forwards and study their statistical characteristics (the first four moments and their autocorrelation levels). The relationships among the forward contracts, the underlying asset (IPD index and IPD unsmoothed) and other assets (risk-free rate, listed real estate) are explored. Using the Yiu et al. (2005) methodology, the lead–lag relationship between the spot and the forwards is assessed. Findings – The index appears to be significantly less volatile and less efficient, in terms of correlation than its own derivative contracts. Moreover, changes in forward prices are leading indicators of the IPD index. Their risks tend to converge with the implied volatility of the REIT’s operating asset but without being affected by the general stock market risks. Regarding the forward price–discovery function, investors should collect information not only from the spot market but also, maybe primarily, from the derivative market. Originality/value – In this paper, we use a never-exploited database that is relative to the quotes of the UK IPD swaps. It is the first attempt to analyze the statistical characteristics of their changes. Our results show that these prices are clearly superior to the spot series, in terms of risks but without behaving affected by the tyranny of the past values. These findings may conduct to consider new methods to unsmooth current real estate indices. Characterized by a strong sensitivity to the changes in the information set, property derivative-based indicators should lead to increased efficiency in the spot market

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