Fundamental Drivers of Dependence in REIT Returns

  • Jamie Alcock
  • Eva Steiner


We analyse the empirical relationships between firm fundamentals and the dependence structure between individual REIT and stock market returns. In contrast to previous studies, we distinguish between the average systematic risk of REITs and their asymmetric risk in the sense of a disproportionate likelihood of joint negative return clusters between REITs and the stock market. We find that REITs with low systematic risk are typically small, with low short-term momentum, low turnover, high growth opportunities and strong long-term momentum. Holding systematic risk constant, the main driving forces of asymmetric risk are leverage and, to some extent, short-term momentum. Specifically, we find that leverage has an asymmetric effect on REIT return dependence that outweighs the extent to which it increases the average sensitivity of REIT equity to market fluctuations, explaining the strong negative impact of leverage on firm performance especially during crisis periods that has been documented in recent empirical work.


Portfolio diversification REITs Real estate as an asset class 

JEL Codes

G11 G12 



We gratefully acknowledge financial support from RERI. Eva Steiner further acknowledges support from the Cambridge Endowment for Research in Finance. We thank Man Cho, SE Ong, Shaun Bond, an anonymous referee, and seminar participants at the RERI Conference 2015 as well as the NUS-Maastricht-MIT Symposium 2015 for their helpful comments.


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© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.University of Sydney Business SchoolSydneyAustralia
  2. 2.Department of Land EconomyUniversity of CambridgeCambridgeUK

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