Varying interest rate sensitivity of different property sectors: cross-country evidence from REITs

Lin, Yu‐Cheng; Lee, Chyi Lin; Newell, Graeme

doi:10.1108/jpif-09-2020-0099

Cited by 7 publications

(6 citation statements)

References 73 publications

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“…7. We wish to thank the reviewer for suggesting the robustness check on the analysis by using the monthly or yearly data. Nevertheless, the use of low frequency data may mask the short- and long-run persistency of shocks to the conditional volatilities and correlations between asset returns (Cotter and Stevenson, 2006; Lin et al ., 2021; Maheu and McCurdy, 2011). …”

Section: Notesmentioning

confidence: 99%

“…As a result, each sector displayed each time-varying and distinct volatility structure, whereby hotel REITs emerged as the most volatile asset. Next, Lin et al . (2021) examined the sensitivity of property sector REITs to changes in interest rate risk.…”

Section: Introductionmentioning

confidence: 99%

“…As a result, each sector displayed each time-varying and distinct volatility structure, whereby hotel REITs emerged as the most volatile asset. Next, Lin et al (2021) examined the sensitivity of property sector REITs to changes in interest rate risk. They disclosed that the effect of interest rate differed for the property sector REITs between the USA and the Japanese market.…”

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confidence: 99%

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The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

Razak

2023

JPIF

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PurposeThis study examined the dynamic role of the Japanese property sector, particularly the real estate investment trusts (REITs), in mixed-asset portfolios of stocks and bonds, as well as office, retail, hotel and residential REITs.Design/methodology/approachDaily data were retrieved from 01 January 2008 to 31 December 2019. The sample time frame consisted of in-sample and out-of-sample periods. The dynamic conditional correlation-generalised autoregressive conditional heteroskedastic (DCC-GJRGARCH) model was deployed to obtain the forecast estimates of time-varying volatility of REITs and correlations with other assets. The estimates were employed to construct out-of-sample portfolios based on the three assets for daily investment. The five sets of portfolios with each individual property sector REITs, as well as a portfolio of stocks and bonds that served as a benchmark, were produced. The average utility for each set of portfolios was estimated and compared with the average utility of the benchmark portfolio. The average transaction cost (TC) for portfolio rebalancing was calculated as well.FindingsThe forecast of volatility estimates for each property sector revealed that each asset displayed a similar pattern with the differences in the volatility magnitude. Notably, hotel and retail REITs were more volatile than other property sector REITs. The property sector REITs exhibited a positive correlation with stocks but negatively linked with bonds. The results unveiled the diversification benefits of incorporating property sector REITs. The portfolio with property sector REITs had higher risk-adjusted returns and utility, compared to portfolio consisting of stocks and bonds. The benefits outweighed the TC for portfolio rebalancing.Practical implicationsThis study highlights the importance of quantifying the conditional time-varying volatility and correlations of the property sector REITs with other asset returns, especially for investment decision, to select and include property sector REITs in mixed-asset portfolios. For fund managers seeking liquid assets in daily investment, this analysis suggests the inclusion of hotel and retail REITs to enhance REITs' portfolio performance.Originality/valueThis study is the first to investigate the dynamic characteristics of the volatility and correlation of each property sector REITs with other financial assets by employing the conditional framework that accounted for short- and long-run persistency in economic shocks. The reported outcomes shed light on the differences in the underlying properties that contribute to the variances in dynamic volatility of each sector REITs, as well as REITs' correlations with stocks and bonds. This application enables the authors to transmit the dynamics of variance-covariance matrix amongst each property sector REITs, stocks and bonds into asset allocation problem on a daily basis.

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Section: Notesmentioning

confidence: 99%

Section: Introductionmentioning

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The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

Razak

2023

JPIF

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“…These indicators include firm size, net profit margin and operating cash flows. Lin et al (2021) examined the effect of interest rates on the firm value of property. This effect occurs mainly because property is generally purchased using loans whose amount depends on the interest rate.…”

Section: Literature Reviewmentioning

confidence: 99%

Profitability of property industries in Indonesia by using firm specific factors and macroeconomic factor

Cakranegara

2022

JAAF

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<p>Property companies are a growing industry in Indonesia. This trend makes the property industry an economically attractive industry for the investor. Due to that development, this study examines the factors that affect the profitability of property companies. This study's profitability is represented by the Return On Equity ratio chosen because this variable will provide returns to equity investors. The independent variables in this study consist of company-specific variables and macroeconomic variables. The research method used is the multiple linear regression method using secondary data taken from the company's financial statements from 2015 to 2019. The findings of this study are that both company-specific and macroeconomic factors significantly influence the profitability of property companies. Specifically, company-specific factors that have a significant effect on profitability are also affected by macroeconomic factors, such as companies' ability to owe as represented by the ratio of Debt to Equity Ratio. Investors can use the findings from this study to determine which companies are suitable for investment. Meanwhile, from the company side, management can focus on this study's findings to increase the company's profitability.</p>

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“…Some REIT regulators also impose a gearing limit directly or indirectly. For instance, there is no specific gearing rule, but the general thin capitalization rules may apply in which this would limit the use of gearing [25][26][27]. More specifically, REITs have been constrained using debt or gearing.…”

Section: Introductionmentioning

confidence: 99%

CEO Overconfidence and Corporate Governance in Affecting Australian Listed Construction and Property Firms’ Trading Activity

2021

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This paper aims to examine whether and to what extent overconfident CEOs affect Australian real estate investment trusts’ (A-REITs) property investment activities during their tenure as the CEO of A-REITs, covering the period 2000–2019. A-REITs’ property investment and disposal activities are separately modelled against CEOs shares in their companies (an indicator of CEO overconfidence), as well as other controlled variables. We found that around 68% of A-REIT CEOs are overconfident over the study period. However, our empirical results also indicated that CEO overconfidence did not have a profound impact on A-REITs’ investment activities, either property acquisitions or disposals. This could be explained by high corporate governance of A-REITs. Specifically, Australian construction and property companies are the leading market players in sustainability. As publicly quoted companies, listed property and construction companies, particularly A-REITs could be exposed to various managerial issues, including corporate CEO overconfidence and its influence on the investment decision-making process. However, this managerial issue could be minimized via an enhancement of corporate governance that is a key pillar of sustainability. The mitigation of corporate overconfidence and implementation of corporate governance mechanisms makes REITs more accountable to their investors. The implications of the findings have also been discussed.

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Varying interest rate sensitivity of different property sectors: cross-country evidence from REITs

Cited by 7 publications

References 73 publications

The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

The dynamic role of the Japanese property sector REITs in mixed-assets portfolio

Profitability of property industries in Indonesia by using firm specific factors and macroeconomic factor

CEO Overconfidence and Corporate Governance in Affecting Australian Listed Construction and Property Firms’ Trading Activity

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