Public versus Private Real Estate Equities

Pagliari, Joseph L.; Scherer, Kevin A.; Monopoli, Richard T.

doi:10.3905/jpm.2003.319911

Cited by 29 publications

(11 citation statements)

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“…Another point to note is that on average, REITs resemble small capitalization stocks; their owners are individuals or small institutional investors who do not hold a diversified portfolio (Pagliari et al, 2003). As such, these investors would value idiosyncratic risk as well.…”

Section: Introductionmentioning

confidence: 99%

Idiosyncratic risk, market risk and correlation dynamics in the US real estate investment trusts

Liow

Addae‐Dapaah

2010

Journal of Housing Economics

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a b s t r a c tThis study examines total, market and idiosyncratic risk and correlation dynamics using weekly return data on two US REIT firm samples from 1988 to 2008. We find that both market and idiosyncratic variance are time-varying and that idiosyncratic variance represents a dominant component of a REIT firm's total variance. We find a decline in idiosyncratic risk as well as a rise in average REIT correlation during the new REIT era, from 1993 to 2008. This recent downward trend of idiosyncratic risk among REITs is different to the stylized upward trend of idiosyncratic risk among stocks. There is bi-lateral Granger causality between the market and idiosyncratic risks. Finally, we detect a positive relationship between the idiosyncratic risk and expected returns, implying that the risk premium of REITs is positively related to the idiosyncratic risk during the period new REIT era, 1993REIT era, -2008 Our results have important asset-pricing implications for under-diversified investors.

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Section: Introductionmentioning

confidence: 99%

Idiosyncratic risk, market risk and correlation dynamics in the US real estate investment trusts

Liow

Addae‐Dapaah

2010

Journal of Housing Economics

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“…It should also be noted that a practitioner-oriented and abbreviated version of this study has appeared inPagliari, Scherer and Monopoli (2003). The subject study is more technically rigorous and more in-depth.154Pagliari, Scherer and Monopoli …”

mentioning

confidence: 99%

Public Versus Private Real Estate Equities: A More Refined, Long-Term Comparison

Pagliari¹,

Scherer²,

Monopoli³

2005

Real Estate Econ

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159

100

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In this article we compare public and private real estate equities. In so doing, we control for three of the main differences between these investment alternatives: property-type mix, leverage and appraisal smoothing. With these two restated indices, we then run tests to determine in a statistical sense whether the restated means and volatilities of the two series were different from one another. The clear answer is that they were not. The results of the statistical tests combined with the fact that the average difference between the two (restated) return series has substantially narrowed (to approximately 60 basis points) in the more recent (1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001) period jointly suggest a seamless real estate market in which public-and private-market vehicles display a long-run synchronicity. This has important implications for portfolio management. First, public-and private-market vehicles ought to be viewed as offering investors a risk/return continuum of real estate investment opportunities. Second, while the "platform" did not matter in terms of observed return characteristics, the platform may matter with regard to liquidity, governance, transparency, control, executive compensation and so forth; an apparent clientele effect hints at these issues being valued differently by large and small investors.Returns on publicly traded real estate investment trusts (REITs) have typically exceeded the returns on private real estate equities by approximately 5% per annum. For example, when returns are observed over the 21-year period ended in 2001, REIT returns (as proxied by the National Association of Real Estate Investment Trusts, or NAREIT, Index) averaged 13.5%, while private real estate returns (as proxied by the NCREIF Property Index, or NPI) have averaged just 8.4%. This performance difference of approximately 500 basis points raises the question: Is this differential attributable to some underlying structural reason (e.g., optimal contracting issues, the efficiency of public markets, etc.) or is it just happenstance? In short, does the "platform" (i.e., the format of the legal entity used to hold the assets) matter? This article attempts to examine rigorously this question.

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“…16 Maurer et al (2004) show in this context that the autocorrelation of real returns is substantially lower. 17 See McAllister, Baum, Crosby, Gallimore, and Gray (2003) and Pagliari, Scherer, and Monopoli (2004) for more detailed discussions. 18 See Coleman and Mansour (2005) for further details.…”

Section: Construction Of Open-ended Property Fund Indicesmentioning

confidence: 99%

Open-ended property funds: Risk and return profile — Diversification benefits and liquidity risks

Haß

Johanning

Rudolph³

et al. 2012

International Review of Financial Analysis

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Public versus Private Real Estate Equities

Cited by 29 publications

References 11 publications

Idiosyncratic risk, market risk and correlation dynamics in the US real estate investment trusts

Idiosyncratic risk, market risk and correlation dynamics in the US real estate investment trusts

Public Versus Private Real Estate Equities: A More Refined, Long-Term Comparison

Open-ended property funds: Risk and return profile — Diversification benefits and liquidity risks

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