REIT idiosyncratic risk

Chiang, Kevin C.H.; Jiang, Xiaguan; Lee, Ming‐Long

doi:10.1080/09599916.2009.485418

Cited by 17 publications

(13 citation statements)

References 53 publications

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“…While the inclusion increases the average adjusted R 2 substantially, neither realised nor idiosyncratic volatility seems to be unconditionally priced in the cross-section of real estate equity returns. This result is in contrast to Chiang et al (2009), Ooi et al (2009), Liow and Addae-Dappah (2010 and DeLisle et al (2011), who show that idiosyncratic volatility is either positively or negatively priced in the cross-section of US REIT returns. However, the results support the conception of the modern portfolio theory and the CAPM in that idiosyncratic risk is diversifiable and that an investor should not be rewarded for being exposed to avoidable risk.…”

Section: Idiosyncratic Riskcontrasting

confidence: 84%

“…A positive relationship between idiosyncratic risk and REIT returns seems to exist in the pos-1993 era. While the results seem to contradict those of Chiang et al (2009) and Hung and Glascock (2010), they are in line with Ooi et al (2009). Lastly, DeLisle et al (2011) show that from 1996 to 2009, idiosyncratic risk dominates systematic risk and is negatively priced in the cross-section of REIT returns.…”

Section: Literature Reviewmentioning

confidence: 68%

“…Depending on the return frequency used to calculate idiosyncratic risk (daily vs monthly), portfolio or individual stock level data, return weighting procedures, idiosyncratic volatility measures and general model set-up, idiosyncratic risk is found to be either positively, negatively or unrelated to expected stock returns. Concerning the US-REIT market, the studies of Jirasakuldech et al (2009), Chiang et al (2009), Ooi et al (2009), Liow and Addae-Dappah (2010) and DeLisle et al (2011) add to the inconclusive evidence on the pricing of idiosyncratic risk.…”

Section: Introductionmentioning

confidence: 94%

“…Unconditional REIT volatility seems to have increased after 1993, while it is less persistent than during the pre-1993 period. Chiang et al (2009) examine trends in the idiosyncratic risk of the US REIT sector from 1980 to 2006 as well as two sub-periods and show that idiosyncratic risk trended upward from 1980 to 1992, while the opposite seems to hold for the period from 1993 to 2006. While idiosyncratic risk seems to be positively related to REIT returns during the vintage REIT era (1980REIT era ( -1992, a negative relationship seems to emerge subsequently.…”

Section: Literature Reviewmentioning

confidence: 99%

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Idiosyncratic risk and the cross-section of European real estate equity returns

Schulte

2014

Journal of European Real Estate Research

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -This study is the first to examine the role of idiosyncratic risk in the pricing of European real estate equities. The capital asset pricing model predicts that in equilibrium, investors should hold the market portfolio. As a result, investors should only be rewarded for carrying undiversifiable systematic risk and not for diversifiable idiosyncratic risk. The study is adding to the growing body of countering studies by first examining time trends of idiosyncratic risk and subsequently the pricing of idiosyncratic risk in European real estate equities. The paper aims to discuss these issues. Design/methodology/approach -The study analyses 293 real estate equities from 16 European capital markets over the 1991-2011 period. The framework of Fama and MacBeth is employed. Regressions of the cross-section of expected equity excess returns on idiosyncratic risk and other firm characteristics such as beta, size, book-to-market equity (BE/ME), momentum, liquidity and co-skewness are performed. Due to recent evidence on the conditional pricing of European real estate equities, the pricing is also investigated using the conditional framework of Pettengill et al. Either realised or expected idiosyncratic volatility forecasted using a set of exponential generalized autoregressive conditional heteroskedasticity models are employed. Findings -The initial analysis of time trends in idiosyncratic risk reveals that while the early 1990s are characterised by both high total and idiosyncratic volatility, a strong downward trend emerged in 1992 which was only interrupted by the burst of the dotcom bubble and the 9/11 attacks along with the global financial and economic crisis. The largest part of total volatility is idiosyncratic and therefore firm-specific in nature. Simple cross-correlations indicate that high beta, small size, high BE/ME, low momentum, low liquidity and high co-skewness equities have higher idiosyncratic risk. While size and BE/ME are priced unconditionally from 1991 to 2011, both measures of idiosyncratic risk fail to achieve significance at reasonable levels. However, once conditioned on the general equity market or real estate equity market, a strong positive relati...

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Section: Idiosyncratic Riskcontrasting

confidence: 84%

Section: Literature Reviewmentioning

confidence: 68%

Section: Introductionmentioning

confidence: 94%

Section: Literature Reviewmentioning

confidence: 99%

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Idiosyncratic risk and the cross-section of European real estate equity returns

Schulte

2014

Journal of European Real Estate Research

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“…The implication is that REIT managers should consider idiosyncratic risk when estimating the required return or the cost of capital on individual common stocks or assets. Chiang et al (2009) have found that during the vintage REIT era, the REIT excess return is positively related to idiosyncratic risk. However and in the new REIT era, the REIT excess return is negatively related to idiosyncratic risk, where a lower REIT idiosyncratic risk level is to be followed by a higher REIT return level and vice versa.…”

Section: Reit Idiosyncratic Riskmentioning

confidence: 99%

REIT market efficiency through a binomial option pricing tree approach

Tay

2016

Journal of Property Investment &Amp; Finance

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Purpose – The purpose of this paper is to examine the risk neutral and non-risk neutral pricing of Singapore Real Estate Investment Trusts (S-REITs) via comparing the average of the individual ratios (of deviation between expected and observed closing price/observed closing price) with the ratio (of standard deviation/mean) for closing prices via the binomial options pricing tree model. Design/methodology/approach – If the ratio (of standard deviation/mean) ratio > the ratio (of deviation between expected and observed closing price/observed closing price), then the deviation of closing prices from the expected risk neutral prices is not significant and that the S-REIT is consistent with risk neutral pricing. If the ratio (of deviation between expected and observed closing price/observed closing price) is greater, then the S-REIT is not consistent with risk neutral pricing. Findings – Capitacommercial Trust (CCT), Capitamall Trust (CMT) and Keppel Real Estate Investment Trust (REIT) have large positive differences between the two ratios (39.86, 30.79 and 18.96 percent, respectively), implying that these S-REITs are not trading at risk neutral pricing. Suntec REIT has a small positive difference of 2.35 percent between both ratios, implying that it is trading at risk neutral pricing. Ascendas REIT has the largest negative difference between the two ratios at −4.24 percent, to be followed by Mapletree Logistics Trust at −0.44 percent. Both S-REITs are trading at risk neutral pricing. The analysis shows that CCT, CMT and Keppel REIT exhibit risk averse pricing. Research limitations/implications – Results are consistent with prudential asset allocation for viable S-REIT portfolio investing but that not all these S-REITs exhibit strong market efficiency in their pricing. Practical implications – Pricing may be risk neutral over a certain period but investor sentiments, fear of risks and speculative activities could affect an S-REIT’s risk neutrality. Social implications – With enhanced risk diversification activities, the S-REITs should attain risk neutral pricing. Originality/value – Virtually no research of this nature has been undertaken for S-REITS.

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