The impact of liquidity on the valuation of European real estate securities

Moss, Alex; Lux, Nicole

doi:10.1108/jerer-12-2013-0026

Cited by 4 publications

(3 citation statements)

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“…Listed property is also credited for providing liquidity when included as part of a blended portfolio with private property and in most cases, its inclusion resulted in an improved performance (see Ametefe et al, 2019;Farrelly and Moss, 2014;Moss and Farrelly, 2015). At the regional front, much of the attention in the literature is aimed towards understanding the pan-European listed property market investment dynamics across a diverse range of themes, such as on the IPO performance (Ascherl and Schaefers, 2018), inflation hedging ability , liquidity issues (Moss and Lux, 2014;Niskanen and Falkenbach, 2012a), capital structure (Morri and Artegiani, 2015;Niskanen and Falkenbach, 2012b), implementation of leverage (Morri and Jostov, 2018), market volatility (Begiazi and Asteriou, 2016), futures contracts , amongst many other themes.…”

Section: Introductionmentioning

confidence: 99%

The evolution of Belgium REITs

Marzuki

Newell

2019

JPIF

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Purpose The Belgium Real Estate Investment Trust (REIT) market was created primarily to facilitate a transparent, professionally managed and fiscally efficient market, providing access to the European property markets. Being the 2nd oldest REIT market in Europe, it has undergone many evolutionary changes over the years that add to its considerable stature as a sophisticated investment opportunity. This includes an increased recent focus on the social infrastructure property sectors such as healthcare, care facilities and nursing homes, consistent with the evolving investment mandates requiring stronger integration of environmental, social and governance (ESG) aspects in the investment strategy formulation. The purpose of this paper is to highlight the strategic transformation of Belgium REITs and empirically assess their performance attributes over 1995–2018. Sub-period performance dynamics of Belgium REITs in the pre-global financial crises (GFC) (1995–2007) and post-GFC (2009–2018) contexts are provided. Design/methodology/approach In total, 23-year monthly total returns over 1995–2018 were used to analyse the risk-adjusted performance and portfolio diversification potential of Belgium REITs. The traditional mean-variance portfolio optimisation model using the ex-post returns, risk and correlation coefficient of Belgium REITs and other financial assets was developed to determine the added-value benefits of Belgium REITs in a diversified investment framework. The analysis was further extended to cover the sub-periods of pre-GFC (1995–2007) and post-GFC (2009–2018). Findings The results of the analysis provide a strong investment case for Belgium REITs, as they are able to deliver a discernible premium in the total return performance, superior risk-adjusted returns and strong diversification benefits with the stock market in a long-term investment horizon. Broadly consistent results are similarly observed in the sub-period analysis over varying market conditions. Importantly, the role of Belgium REITs in a diversified investment framework was also empirically validated, as they enhanced the mixed-asset portfolio performance comprised of the traditional asset classes of stocks and bonds across a broad portfolio risk-return spectrum. Dividend yield was also found to be a key component of the financial performance of Belgium REITs. Practical implications The Belgium REIT market has evolved to become the 5th largest market in Europe by the capitalisation volume. This is mainly due to the robust regulatory support and innovations since its debut which have resulted in a polished framework that is both supportive and attractive to financial players and investors. The broad direct consequence of this paper is to highlight the performance attributes of Belgium REITs, adding clarity to the ongoing discussion regarding the viability of European REITs as a liquid and tax transparent route for institutional investors to obtain their property exposure. The strong dividend yield and ESG/social infrastructure focus of Belgium REITs sees Belgium REITs well-placed going forward to meet the evolving investment mandates from major investors. Originality/value This paper is the first empirical investigation that elucidates the risk-adjusted performance and role of Belgium REITs as an important property investment opportunity. It equips investors and practitioners with an independent and comprehensive empirical validation of the strategic role of Belgium REITs in a portfolio. Well-informed and practical property investment decision making regarding the use of Belgium REITs for access to the property asset class is the main outcome of this paper.

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Section: Introductionmentioning

confidence: 99%

The evolution of Belgium REITs

Marzuki

Newell

2019

JPIF

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“…Newell, 2016;Schulte et al, 2005) and German listed property securities in a local and European context (e.g. Haran et al, 2013;Lang and Schaefers, 2015;Lenkkeri et al, 2006;Morri and Artegiani, 2015;Morri and Baccarin, 2016;Moss and Lux, 2014;Scholz et al, 2015).…”

Section: Introductionmentioning

confidence: 99%

The emergence and performance of German REITs

Newell

Marzuki

2018

JPIF

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Purpose German real estate investment trusts (REITs) are a small but important property investment vehicle in the European REIT landscape, offering German commercial property investment exposure in a liquid format, compared to the more property development-focused German listed property companies and the popular German open-ended property funds. The purpose of this paper is to assess the emergence of the German REIT market and the risk-adjusted performance and portfolio diversification benefits of German REITs in a mixed-asset portfolio over 2007-2015. The post-global financial crisis (GFC) recovery of German REITs is highlighted. Enabling strategies for the ongoing development of the German REIT market are also identified. Design/methodology/approach Using monthly total returns, the risk-adjusted performance and portfolio diversification benefits of German REITs over 2007-2015 are assessed. Efficient frontier and asset allocation diagrams are used to assess the role of German REITs (and German property companies) in a mixed-asset portfolio. Sub-period analysis is used to assess the post-GFC recovery of German REITs. Findings German REITs delivered lesser risk-adjusted returns compared to German stocks over 2007-2015, with limited portfolio diversification benefits. However, since the GFC, German REITs have delivered strong risk-adjusted returns, but with continued limited portfolio diversification benefits with German stocks. German REITs also out-performed German property companies. Importantly, this sees German REITs as strongly contributing to the German mixed-asset portfolio across the portfolio risk spectrum in the post-GFC environment. Practical implications German REITs are a small but important market at a local, European and global REIT level. The results highlight the major role of German REITs in a German mixed-asset portfolio in the post-GFC context. The strong risk-adjusted performance of German REITs compared to German stocks sees German REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as many investors (e.g. small pension funds) use German REITs (and German listed property companies) to obtain their German property exposure in a liquid format, as well as the increased importance of blended property portfolios of listed property and direct property. Originality/value This paper is the first published empirical research analysis of the risk-adjusted performance of German REITs, and the role of German REITs as a listed property vehicle in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision making regarding the strategic role of German REITs in a portfolio.

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“…They suggest that daily return data are not qualitatively different from market microstructure data. The same relationship between volume turnover, market capitalisation, volatility and market spreads is presented in a detailed study by Moss and Lux (2014) for the UK and European listed real estate sector. Very early on, Clayton and MacKinnon (2003) investigated changes in REIT liquidity since the dramatic growth of the market in 1993.…”

Section: Review Of Relevant Literature Historical Trend In Liquiditymentioning

confidence: 61%

Liquidity in global real estate securities markets

Lux

Moss²

2016

Journal of Property Investment &Amp; Finance

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link:http://openaccess.city.ac.uk/18447/ Link to published version: http://dx.doi.org/10.1108/ JPIF-11-2015-0078 Copyright and reuse: City Research Online aims to make research outputs of City, University of London available to a wider audience. Copyright and Moral Rights remain with the author(s) and/or copyright holders. URLs from City Research Online may be freely distributed and linked to. IntroductionThe correlation of global equity markets has been a long-term research topic for investors seeking the optimum combination of risk diversification and maximum return. The quantitative analysis of international diversification dates back at least to Henry Lowenfeld's (1909) study of equalweighted, industry-neutral, risk-adjusted, international diversification strategies, using price data from the global securities trading on the London Exchange around the turn of the century. He illustrates the imperfect co-movement of securities from various countries. In general, global equity markets and regional markets are often correlated with one another, especially in times of economic recession with prominent contagion and spillover effects. Listed real estate companies are considered attractive because of their liquidity, and exposure to underlying real estate returns. Since the evolution of the modern-REIT era in 1992 in the US, there has been a significant increase in market capitalisation, both in absolute terms and relative to the general equity market, as well as improvements in liquidity. But, with respect to previous findings about the correlation and comovement in equity markets during times of stress, how have listed real estate markets been affected by the global financial crisis ( Even in relatively stable periods, co-moving trending behaviour can be found across equity markets for stock returns, volatility, and trading volumes. Singh, Kumar and Pandey (2010) examine the stock returns volatility spillover effects across fifteen stock markets of North America, Europe and Asia employing a vector auto regression model, which is used to capture the linear interdependencies among multiple time series data. This paper uses liquidity measures which do not require microstructure data that might not be available on a comparative level for international markets. While most other studies have focused on risk and return, this research explores co-movements in market liquidity in different securities markets. The first section starts by analysing the dependence of liquidity on key variables namely geography and company size and explores the differences in market liquidity during three time intervals between 20002 -2014. The next section of the research links liquidity drivers and performance.By classifying the data of 60 global companies into different groups to distinguish samples by country of origin and size, the paper analyses the impact of the so-called small cap effect on l...

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The impact of liquidity on the valuation of European real estate securities

Abstract: This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link:

Cited by 4 publications

References 32 publications

The evolution of Belgium REITs

The evolution of Belgium REITs

The emergence and performance of German REITs

Liquidity in global real estate securities markets

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