The Relative Importance of Stock, Bond and Real Estate Factors in Explaining REIT Returns

Clayton, Jim; MacKinnon, Greg

doi:10.2139/ssrn.232394

Cited by 108 publications

(176 citation statements)

References 24 publications

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“…Using a series of commonly used multifactor asset pricing models, Ling and Naranjo (1999) confirmed that US REITs are integrated with the stock market and the degree of such integration has significantly increased during the 1990s, while there is little evidence for integration between the real estate and stock markets when appraisal-based real estate returns are used. Using a multifactor model where stock, bond and direct real estate returns as proxies for underlying state variables determining these asset prices, Clayton and Mackinnon (2003) reported that while through 1970s and 1980s the US NAREIT returns were driven largely by the same economic factors that drive large cap stocks, they are more closely related to both small cap stock and real estate-related factors in 1990s. Downs and Patterson (2005) employed a generalized asset pricing model (i.e., a discount factor model) and showed that US REIT returns from 1972 to 1991 cannot be fully explained by stock and bond returns.…”

Section: Literature Reviewmentioning

confidence: 99%

Asymmetric Correlation and Volatility Dynamics among Stock, Bond, and Securitized Real Estate Markets

Yang

Zhou

Leung

2010

J Real Estate Finan Econ

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We apply a multivariate asymmetric generalized dynamic conditional correlation GARCH model to daily index returns of S&P500, US corporate bond, and their real estate counterparts (REITs and CMBS) from 1999 to 2008. We document, for the first time, evidence for asymmetric volatilities and correlations in CMBS and REITs. Due to their high levels of leverage, REIT returns exhibit stronger asymmetric volatilities. Also, both REIT and stock returns show strong evidence of asymmetries in their conditional correlation, suggesting reduced hedging potential of REITs against the stock market downturn during the sample period. There is also the evidence that corporate bonds and CMBS may provide diversification benefits for stocks and REITs. Furthermore, we demonstrate that default spread and stock market volatility play a significant role in driving dynamics of these conditional correlations and that there is a significant structural break in the correlations caused by the recent financial crisis.

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Section: Literature Reviewmentioning

confidence: 99%

Asymmetric Correlation and Volatility Dynamics among Stock, Bond, and Securitized Real Estate Markets

Yang

Zhou

Leung

2010

J Real Estate Finan Econ

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“…Liu and Mei (1992) as well was Clayton and MacKinnon (2003) are representative of this class of studies. Liu and Mei (1992) decompose REIT returns into expected and unexpected excess returns and show that expected excess returns for equity REITs are not only predictable but also are partly driven by a commercial real estate pricing factor vis-a-vis cap rates.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Liu and Mei (1992) decompose REIT returns into expected and unexpected excess returns and show that expected excess returns for equity REITs are not only predictable but also are partly driven by a commercial real estate pricing factor vis-a-vis cap rates. Clayton and MacKinnon (2003) do a slightly different decomposition of REIT returns using a multi-factor model consisting of large cap stocks, small cap stocks, bonds and real estate that are first orthogonalized. They find that during the REIT boom of the early 1990s, REITs were primarily driven by both small cap stock and real estate related factors.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Although these studies do not address whether REITs outperformed stocks (using Jensen's alpha), both studies are consistent with the notion that REITs tend to reflect real estate during REIT booms. While the study of Liu and Mei (1922) use transaction-based cap rates, Clayton and MacKinnon (2003) use appraised based index. These studies suggest that the testable implication of our current study which is that REITs outperform stocks when REITs have a closer link to the underlying real estate.…”

Section: Literature Reviewmentioning

confidence: 99%

“…These studies suggest that the testable implication of our current study which is that REITs outperform stocks when REITs have a closer link to the underlying real estate. While the Clayton and MacKinnon (2003) orthogonal approach fixes the relationship between asset classes for the entire sample or the 6-year quarterly sub-period examined, our rolling window approach allows for time variation in the relationship we are studying.…”

Section: Literature Reviewmentioning

confidence: 99%

See 2 more Smart Citations

The Hybrid Nature of Real Estate Trusts

Emmerling¹,

Liu²,

Yıldırım³

et al. 2017

24th Annual European Real Estate Society Conference

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When do real estate trusts exhibit superior performance, when they mimic the underlying real estate or when they behave like stock? We test whether real estate trusts outperform common stock only when it mimics underlying property fundamentals. We also explore what capital market conditions correspond to and/or contribute to when securitized real estate behaves more like underlying property fundamentals. To explore this issue, we examine the investment performance of real estate trusts over the Great Depression and also the Great Recession. A distinguishing feature of our study is that we are the first to analyze the investment performance of real estate trusts (RETs), the predecessor to modern day real estate investment trusts (REITs), which traded over the late 19 th and early 20 th century. We compare the behavior and performance of RETs to REITs in the process. We find evidence consistent with the notion that securitized real estate exhibits superior performance only when it mimics the direct real estate market. This performance is fueled in part by cheaper borrowing costs, greater availability of debt and equity financing, and loosening credit standards. With the advent of a crisis, securitized real estate exhibits a greater co-movement with common stock. When this occurs, real estate behaves in a similar fashion to common stock and any abnormal performance disappears. This corresponds to tighter lending conditions and higher borrowing costs. We also show that RETs behave in a similar fashion to REITs.

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Net Asset Value Discounts for Asian-Pacific Real Estate Companies: Long-Run Relationships and Short-Term Dynamics

Liow

Liu

2006

J Real Estate Finan Econ

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This study investigates the time series behavior of real estate company net asset value discount/premium (NAVDISC) in eight Asian-Pacific securitized real estate markets from 1995 to 2003. We postulate that if there is a stable NAVDISC for real estate companies in the long-run, then there should be a longrun cointegrating relation between their stock prices (Ps) and net asset values (NAVs). Employing panel data cointegration econometrics that comprises three approaches; panel unit root test, heterogeneous panel cointegration test and dynamic panel error-correction modeling (ECM), we find that long run NAVDISCs persist in individual Asian-Pacific securitized real estate markets and the regional market. All the NAVDISCs exhibit mean reversion and that the respective disequilibrium errors fluctuate around the mean values. Moreover, NAV is an important factor that statistically explains the price variations in real estate stock prices regardless of their speed of mean-reversion in the NAV discount /premium.

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The Relative Importance of Stock, Bond and Real Estate Factors in Explaining REIT Returns

Cited by 108 publications

References 24 publications

Asymmetric Correlation and Volatility Dynamics among Stock, Bond, and Securitized Real Estate Markets

Asymmetric Correlation and Volatility Dynamics among Stock, Bond, and Securitized Real Estate Markets

The Hybrid Nature of Real Estate Trusts

Net Asset Value Discounts for Asian-Pacific Real Estate Companies: Long-Run Relationships and Short-Term Dynamics

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