Discovering REIT Price Discovery: A New Data Setting

Article

Abstract

This study decomposes real estate investment trust (REIT) returns into two components: (1) real returns, and (2) public returns. The real returns are based on the changes in the private, appraisal-based net asset values of REITs, whereas the public returns are measured by the variations in REITs’ premiums/discounts. This study then investigates the price discovery of REIT prices. The results indicate that lagged public returns are useful in predicting real returns. In addition, the study documents concurrent factor exposures for public returns and lagged factor exposures for private returns under a variety of asset pricing models. Overall, the results are consistent with the notion that public markets are more efficient in processing information.

Keywords

REITs Price discovery Factor exposures NAVs Discounts/premiums 

References

  1. Barkham R., & Geltner D. (1995). Price discovery in American and British property markets. Real Estate Economics, 23, 21–44.CrossRefGoogle Scholar
  2. Bodurtha J. N. Jr., Kim D., & Lee C. (1995). Closed-end country funds and U.S. market sentiment. Review of Financial Studies, 8, 879–918.CrossRefGoogle Scholar
  3. Bradrinath S. G., Kale J. R., & Noe T. H. (1995). Of shepherds, sheep, and the cross-autocorrelations in equity returns. Review of Financial Studies, 8, 401–430.CrossRefGoogle Scholar
  4. Chiang K., & Lee M. (2002). REITs in the decentralized investment industry. Journal of Property Investment and Finance, 20, 496–512.CrossRefGoogle Scholar
  5. Chiang K., Lee M., & Wisen C. (2004). Another look at the asymmetric REIT-beta puzzle. Journal of Real Estate Research, 26, 25–42.Google Scholar
  6. Chiang K., Lee M., & Wisen C. (2005). On the time-series properties of real estate investment trust betas. Real Estate Economics, 33, 381–396.CrossRefGoogle Scholar
  7. Clayton J., Geltner D., & Hamilton S. (2001). Smoothing in commercial property valuations: Evidence from individual appraisals. Real Estate Economics, 29, 337–360.CrossRefGoogle Scholar
  8. Clayton J., & Mackinnon G. (2003). The relative importance of stock, bond, and real estate factors in explaining REIT returns. Journal of Real Estate Finance and Economics, 27, 39–60.CrossRefGoogle Scholar
  9. Damodaran A., & Liu C. H. (1993). Insider trading as a signal of private information. Review of Financial Studies, 6, 79–119.CrossRefGoogle Scholar
  10. Engle R. F., & Granger C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55, 251–276.CrossRefGoogle Scholar
  11. Fama E. F., & French K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33, 3–56.CrossRefGoogle Scholar
  12. Fisher, J., Geltner, D., & Pollakowski, H. (2006). A quarterly transactions-based index (TBI) of institutional real estate investment performance and movements in supply and demand. Working paper, MIT.Google Scholar
  13. Fristenberg P., Ross S., & Zisler R. (1988). Real estate: the whole story. Journal of Portfolio Management, 14, 22–34.CrossRefGoogle Scholar
  14. Fu Y., & Ng L. K. (2001). Market efficiency and return statistics: Evidence from real estate and stock market using a present-value approach. Real Estate Economics, 29, 227–250.CrossRefGoogle Scholar
  15. Gentry, W. M., Jones, C. M. & Mayer, C. J. (2004). Do stock prices really reflect fundamental values? The case of REITs. Working Paper, Williams College.Google Scholar
  16. Giliberto M. (1990). Equity real estate investment trusts and real estate returns. Journal of Real Estate Research, 5, 259–263.Google Scholar
  17. Gyourko J., & Keim D. (1992). What does the stock market tell US about real estate returns? AREUEA, 20, 457–486.Google Scholar
  18. He L. T. (2002). Excess returns of industrial stocks and the real estate factor. Southern Economic Journal, 68, 632–645.CrossRefGoogle Scholar
  19. Kallberg J. G., Liu C. H., & Pasquariello P. (2002). Regime shifts in Asian equity and real equity markets. Real Estate Economics, 30, 263–291.CrossRefGoogle Scholar
  20. Kallberg J. G., Liu C. L., & Trzcinka C. (2000). The value added from investment managers: An examination of funds of REITs. Journal of Financial and Quantitative Analysis, 35, 387–408.CrossRefGoogle Scholar
  21. Lee, M., Lee, M., & Chiang, K. (2008). Real estate risk exposure of equity real estate investment trusts. Journal of Real Estate Finance and Economics 36(2).Google Scholar
  22. Linneman, P. (2000). Real estate today: New strategic moves. Commonfund Quarterly, Fall, 3–6.Google Scholar
  23. Liu C. H., & Mei J. (1992). The predictability of returns on equity REITs and their co-movement with other assets. Journal of Real Estate Finance and Economics, 5, 401–418.Google Scholar
  24. Mei J., & Lee A. (1994). Is there a real estate factor premium? Journal of Real Estate Finance and Economics, 9, 113–126.CrossRefGoogle Scholar
  25. Miles M., Cole R., & Guilkey D. (1990). A different look at commercial real estate returns. AREUEA, 18, 403–430.Google Scholar
  26. Peterson J., & Hsieh C. (1997). Do common risk factors in the returns on stocks and bonds explain returns on REITs? Real Estate Economics, 25, 321–345.CrossRefGoogle Scholar
  27. Tuluca S. A., Myer F. C. N., & Webb J. R. (2000). Dynamics of private and public real estate markets. Journal of Real Estate Finance and Economics, 21, 279–296.CrossRefGoogle Scholar
  28. Ziering, B., Winograd, B., & McIntosh, W. (1997). The evolution of public and private market investing in the new real estate capital markets. Parsippany, NJ: Prudential Real Estate Investors.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.School of Business AdministrationUniversity of VermontBurlingtonUSA

Personalised recommendations